A-BEAUTIFUL-CONSTRAINT

A beautiful constraint.

How to transform your limitations into advantages.

By Adam Morgan & Mark Barden.

 Summarised by paul_arnold@me.com – Strategic facilitator, planner and trainer.

The book in a nutshell

Every cloud has a silver lining. When life gives you lemons, make lemonade. Constraints are assumed to be a bad thing, but in reality they can often be the grist that creates the pearl. Rather than being a restrictor, they lead to bolder, more innovative solutions.

Every person and every organisation faces constraints. With a more positive attitude and use of techniques you can leverage these constraints for competitive advantage.

The authors recommend a six step process:

Step 1: Victim, Neutraliser & Transformer

Step 2: Break path dependence

Step 3: Ask propelling questions

Step 4: Can-if

Step 5: Creating abundance

Step 6: Activating emotions

The book

Introduction

A constraint is a limitation imposed by outside circumstances or by ourselves that materially affects our ability to do something. The authors prefer the definition. ‘A limitation or defining parameter, often the stimulus to find a better way of doing something.’

We should view constraints not as a restrictor but rather a stimulus for increased creativity and positive change. Many managerial systems focus on either managing out or removing constraint from a system. This book however advocates embracing the constraint.

There are three types of constraint:

-Foundation – A limit in one of the key success factors of a category – e.g. Zappo’s online shoe retailer where customers can’t try on the shoes in store. To overcome this constraint they offered free return shipping.

– Resource – Raw materials, time, money and people/talent etc – e.g. Southwest airline who had only three planes but four routes to serve. To overcome this they revolutionised the industry by developing a turnaround time of just 10 minutes when it was one hour.

– Method – Where have to do something in a certain way e.g. Aravind eye hospital in India used the principles from fast food to overcome the log jam in eye surgery.

The two solid fuel engines that power the space shuttle are 4 feet 8.5 inches wide as that is the width of the railway tracks needed to carry them from Utah to Florida. 4 feet 8.5 inches is the size of the roads first built by the Romans. Thus one of the most advanced pieces of technology is constrained by a convention set up 2000 years ago.

Mick Jagger’s unique dance came about from years of performing on tiny stages in small clubs.

Google’s home page is simple because Larry Page was not adept at coding.

Simcha Blass from Netafim (Israel) noticed that one tree had grown taller than others planted at the same time. A burst pipe meant water constantly dripped near the tree. Tests helped him discover that drip irrigation not only leads to increased growth of crops by 20% but also used 50% less water.

Super-Mario characterisation came about due to the poor pixelation on eight-bit technology.

Twitter’s constrained 140 character limit has driven its popularity.

The book suggests a stepwise approach to turn constraint into abundance by a three part, six step process:

Part 1 – Mindset

Step 1: Victim, Neutraliser & Transformer

Step 2: Break path dependence

Part 2 – Method

Step 3: Ask propelling questions

Step 4: Can-if

Step 5: Creating abundance

Part 3 – Motivation

Step 6: Activating emotions

Step 1: Victim, Neutraliser & Transformer

How you perceive a constraint will affect your ability to deal with it.

There are three kinds of mindsets that influence how you approach a constraint:

-Victim – Sees the constraint as a limiting problem so will lower their ambition.

– Neutraliser – Sees the constraint as a roadblock on the way to their ambition. They will find a way around it without compromising their goal.

– Transformer – Sees the constraint as an opportunity to improve their goal.

Different constraints at different times trigger different reactions. Often people go through all three.

In 1980’s Dan Wieden was briefed by Phil Knight at Nike that he do not want any advertising that looked, felt or smelt like advertising. Wieden stuck a photo of Finnish Olympic runner Lasse Viren above his desk and thought what would he say to him that would not make him laugh? Since then the culture inside the agency is to ‘walk in stupid each day’ (so not driven by past convention).

Marissa Mayer (ex Google) knew the importance of self imposed constraints: “We need constraints in order to fuel passion and insight”. Her team was restricted in size (625Gb) and teams of just three people with just one day to create a prototype.

To help get into the right mainframe, the authors pose a few questions to challenge yourself with. What if you increase the level of the constraint (e.g. from 12 months to 6 months; from 20% increase to 100% increase….). Then answer the following questions:

1) Do you believe it is possible? (Mindset)

2) Do you know how to do it? (Method)

3) How much do you really want it? (Motivation)

As regards mindset, it’s useful to think of past times where you (or others) have beaten the odds. Be aware of your surrounding culture (be it your organisation or personal circles) as these groups can unconsciously influence you positively or negatively. Are you surrounded by ‘Can-do’ people or ‘Can-not’ people?

When Yves Behar first presented the idea of providing a laptop per child for $100, he was constantly confronted by nay-sayers.

Sir David Ogilvy once said, “Thank goodness of the freedom of a tight brief”. It’s the very constraint that creates creativity not hampers it. 

Psychologists found that when a fence was erected in a playground, the children used more of the space than before.

Jerry Seinfeld imposed self constraint (of no sex or swearing) to raise his own comic creativity.

Step 2: Break path dependence

We get locked into doing things certain ways without even thinking why. This blocks creativity. Constraint forces us to challenge these.

Sydow, Schreyogg and Koch suggested organisations go through three stages of path dependence:

Stage 1: Broad range of approaches used – Left up to managerial discretion

Stage 2: Adoption of ‘best practice’ – One recommended approach. Some degree of flexibility

Stage 3: Locked in – No room for flexibility. Often by this stage it becomes unconscious and never challenged.

Thus we tend to approach problems in the same way. We look at the same data, we ask similar questions, judge things on the same old criteria, involve similar partners, look at past solutions, and end up making the same decisions. No wonder we rarely unlock those intransigent problems! Even with completely new situations we tend to use old patterns (Einstein once said, “We can’t solve problems by using the same kind of thinking we used when we created them” – Ed).

Historic reporting structures and language can lock us in (e.g. US government still report employment in terms of ‘non-farm payroll’. Also a department called ‘optics’ will assume all answers must lie in optics). Daniel Kahnemen talks about how the naming of something makes the invisible become visible.

There are three types of ‘lock in’:

– Cognitive – Personal limiting mainframes

– Cultural – Collective limiting mind-frames and

– Procedural

People outside an industry are free of the locked-in mindset. This allows them to see new revolutionary solutions that the current incumbents are blind to.

Moore’s law is as much a mindset as it is about the physics. Because people believe the story, they make it happen.

Reverse innovation – rather than taking a product developed in an advanced market, creative innovation can come from working in more naive, developing markets who are able to think differently and so open up new possibilities cf the cheap car was developed in India.

Dr Louise Waters is the CEO of Leadership Public Schools in San Francisco. She noticed that kids from deprived backgrounds were 4-5 years behind in education standards by the time they reached high school. Rather than be constrained by this, she set an ambitious target that all her pupils would reach the standards by high school age (yet with no extra funding). This led to different approaches such as tailored learning for each child, and getting instant feedback on learning via  a revolutionary piece of technology.

When Nike developed their Flyknit shoes they needed to forget everything they knew about how to make uppers.

Breaking path dependence first requires an awareness of dependence and challenging the accepted wisdom (e.g. the benchmarks and KPI’s used, the current relationships used etc etc). It’s often achieved over many small steps as opposed to one big jump. The authors suggest identifying the most important six words used in an organisation and to then interrogate them. Furthermore they recommend mapping out all the process steps and challenging each one. It’s also worthwhile looking at things through a different lens (e.g. using external people – including your consumers).

Unilever challenged its own assumptions, by asking what would happen to taste if they increased the amount of green tomatoes allowed in their recipes from 5 to 10% – a criteria set many years before and had never been challenged.

Surf dug deeper into their ‘Savvy shopper’ segment by mapping their entire day through the lens of the snakes and ladders game. They identified that cleaning is lonely and joyless. This allowed them to build new emotions into the brand.

Visa changed who they wanted to be benchmarked against from their standard competitors such as Mastercard to the world’s most powerful brands such as Apple and Nike.

The US Navy had to break many paths of dependence to develop aircraft carriers.

One of the other sources to break conventions is to start asking different questions (ask the same questions, get the same answers). For example, asking how to market a brand when in heavy constraint (such as dark markets where no advertising is allowed as small brands are effectively in the dark shadows of high spending brands).

Virgin use the flight safety video as another ‘advertising space’ to demonstrate the brands distinctive personality.

Step 3: Ask propelling questions

Part of the way to break through is to start asking more powerful questions.

Just focusing on being ‘a bit better’ than your competition is a recipe for extinction. You need to think bigger – and focus on better meeting the real needs of your consumers. “Don’t just be ‘better’, be really amazing”, says Larry Page of Google. He sees his role to ask bigger questions. He calls these ‘10x’ questions. He asks questions that on the surface seem ridiculous or impossible, such as “How can we reduce car accidents?” Asking impossibly difficult questions demands novel solutions rather than staying inside the normal parameters of problem solution.

These ‘How to’ or ‘How can’ questions are called Propelling Questions as they force you to think differently. A propelling question has both a bold ambition and a significant constraint.

The construct of a propelling questions is asking a How to….(Bold ambition) with …(constraint) e.g. How to grow better barley with less water?

IKEA asked a propelling question: “How to make a durable, well-designed table for $5?” To answer this, they had to ignore the conventions of table making and  explore lateral solutions. They found the answer by sawing doors in half.

Audi asked a propelling question: “How to win LeMans if our car could go no faster than the others?” The answer was to make it more fuel efficient (as less pit stops). Hence the development of the first Diesel racing car that won LeMans three years in a row.

Made.com asked a propelling question: “How to exhibit at the world’s most prestigious furniture exhibitions in Milan without paying for an exhibition hall?” They were able to borrow the apartments of four of their supporters and used them as exhibition spaces. They received over 1,000 guests.

SAB asked, “How to increase barley yield and quality while reducing water consumption by 10%?” They spoke to Barley farmers and found that barley growth has three distinct stages. Reduced water in the middle stage promotes growth. The new approach reduced water consumption by 48%, yet increased yield (with a reduced cost per hectare of $40).

George Bernard Shaw once wrote, “The reasonable man adapts himself to the world, while the unreasonable man persists in adapting the world to himself….therefore all progress belongs to the unreasonable man”. Consumers are becoming more demanding – compromise is no longer tolerated (which becomes an empowering constraint). Those who unlock an area of compromise in a category open themselves up to great fortunes.

The authors identify a range of different areas of constraint (but there may be others unique to your organisation):

– Constraint of Foundation – A fundamental foundation for success – e.g. How to see shoes without a retail outlet on the high streets?

– Constraint of Resource – Budget, time, people, skills, knowledge – e.g. How to launch a new rum brand without a budget?

– Constraint of Method – Where constrained by a certain mode of delivery – e.g. How to win at LeMans without a faster car?

There are of course many external constraints on an organizations as well (e.g. Political, Economic, Social, Technological, Environmental, Legal, etc)

There are four sources of ‘unreasonableness’:

– The unreasonable regulator – e.g. US Government set corporate average fuel economy  goals of 54.5miles per gallon by 2025.

– The unreasonable consumer – Why can’t I have high fashion items at high street prices? I want cleaners that clean as well as other products but are ecologically friendly. I want the best mobile phones and the best networks without being tied into a contract etc.

– The unreasonable customer – e.g. Walmart demand higher standards of pricing points from its suppliers.

– The unreasonable challenger – Challengers from outside the category. e.g. Air BnB. Or challengers from a young upstart in a category – e.g. Tesla vs Mercedes.

 

Step 4: Can-if

Optimism erodes away over time. That’s why we need propelling questions and leaders that keeping inspiring action towards the goal. Academics have shown that positivity correlates with both resilience and openness. You need to keep focus on what has to happen to make it work rather than be de-railed by why it can’t work.  The authors coin a phrase, ‘Can…If’  (versus, ‘We can’t because…’).

Fail your way forward – Keep investing in solving the problem.  If at first you don’t succeed, find a new way (rather than getting trapped in just trying to do the same strategy again). So don’t fall in love with your strategy else it will blind you to its failings.

IDEO’s Tim Brown has observed that constraints (like most issues) are rarely one-dimensional. Thus to really unpick a problem requires multiple layers of ‘Can…If.

Taiwan needed to build a robust economic platform to withstand the pressures from mainland China, but they had a key constraint, natural resources. So the propelling question became, ‘How do we boost our economy without natural resources? The first level answer from their ‘Can…If’ questions was, “We can boost our economy without natural resources IF we increased the level of education”. But this led to the next constraint of a lack of teachers.   Their next ‘Can..If’ helped them to utilise graduates as teachers. This then fed the next identified constraint of lack of schools. This resulted in identifying new sources of funds (effectively taking funds from other government departments who would all benefit from raised educational standards).  Since improving the education, Taiwan’s economy has grown by c9% every year for 30 years (higher than Japan). They are a country of just 23m yet have the fourth largest cash reserves in the world.

Useful sources of ‘Can…If’ are:

-We can if we think of it as… – Metaphorical approaches that breaks the constrained pattern of thinking – e.g. Health services who see patients as customers.

In the time it takes to load a game, players can now practice their skills – so no longer see the upload time as a negative experience of the game.

-We can..if we use other people to… – Think laterally about who to ask help from.

DuoLingo has 1.2m people translating for free as they see it as an opportunity to improve their language skills.

-We can..if we remove x… – Often simplifying a process helps unlock value and time.

A chain of hair colouring salons in New Zealand stopped drying customers hair, allowing the stylists to move quicker onto new customers, saving time and money. 

CitizenM looked at what people most wanted in a great hotel experience (bed, shower, technology and design) and took away the things that mattered less (no double sinks, no robes, no slippers, no tea, no minibar, no paper receipts etc).Thus they were able to offer top hotel experience at 75% of the price.

-We can…if we access knowledge of… – Finding new sources of knowledge.

PHD, the global media agency, tapped into the knowledge resource of its 3,000 global employee base. A brief would be open to all employees (it included a gaming element where there was a publicised leader board of those who had contributed the most).

-We can…if we introduce a… – New product or service.

Surf increased its fragrance levels leading to a more emotionally rewarding experience. Surf grew by 36% globally from 2009 to 2012.

-We can…if we substitute x for y… – e.g. substituting an airbag ‘scarf’ for a cycle helmet (as many people found helmets flattened their hair).

-We can…if we fund it by… – Finding new sources of funding e.g. crowd sourcing, customer sourcing (cf BrewDog) etc.

-We can…if we mix together… – Putting new things together.

Recipes generated by a computer led to ‘Thai Swiss Asparagus Quiche’.

-We can…if we resource it by… – Finding new resources that currently do not have. E.g. Rent a runway wanted to rent out top designer fashions, but they did not have the finance to buy the items. So they convinced top designers to supply them the dresses for free. Uber, AirBnB and BlaBlaCar riding service in France are all examples of tapping into new sources.

In Kenya, chicken farmers were losing a lot of chicks to arial predators such as eagles and hawks. The other issue was disease.  But farmers did not want to invest in inoculating all their chicks since most of them got eaten.  By painting the chicks blue the eagles did not recognise them, thus increasing the yield, making it more cost effective for farmers to inoculate.  These two measures increased survival rates from 20% to c85%. However, this created a knock-on problem: food. The Can…if solution was to exploit the underground legions of termites. But the next issue was how to ‘excavate’ them? Another part of Kenya had already solved this issue using bundles of waste crop soaked in water.

 

Step 5: Creating abundance

The award winning TV show, ‘Whose line is it anyway’ works off the core idea of constrained resources. The comedians see this as a leverage point for creativity rather than a restriction.   It’s easy solving problems with more resources – but more fun and rewarding to do it with less. To start you need a positive mindset.  Secondly we need to be open to new sources. People born into poverty tend to be more resourceful than those born into a world of abundance. Thirdly, we rarely mine all the resource opportunities we have around us as. For example we only think of resources as those being within our immediate control; we tend to wait for resources to be given to us rather than going out hunting for new ones; the resources we do have we do not extract all the resources possible from them. Finally we do not think what resources we have that we could barter with.

There are four common resources to explore:

– Invested stakeholders  – e.g. made.com were able to exhibit at Milan by displaying their furniture in four of their customers spaces

– External partners – e.g SAB working closely with farmers

– Resource owners – e.g. The NGO Colalife used CocaCola’s distribution might to deliver packs of their dehydration salts to children suffering from diarrhoea across Africa

– Competition – e.g. Ford & Toyota collaborating on technologies for hybrid trucks.

When Virgin America launched in 2007 their goal was to ‘put glamour back into air travel’. They wanted their airlines to feel like nightclubs in the sky.   But they lacked money for the launch. They saw the planes as an asset they could leverage. So they flew Victoria Secret’s models to their annual fashion show (gaining lots of PR for their in flight pyjama party). 

This who share our agenda/values/mission/purpose are more likely to contribute resources. Also those who recognise they lack something we have will also be up for bartering.  The aim should be to work on selling people our mission/purpose/values etc and also helping them to see that what we have is what they re missing.

The World Association of Girl Guides and Girl Scouts benefits from the Dove Self Esteem program as they have a shared vision of preparing girls to become fully functioning successful adults. 

Nike gave away the intellectual property rights for its ‘Making’ app (which catalogs 75,000 different materials by environmental impact and sustainability) because Nike values a sustainable future for all.

 

Step 6: Activating emotions

Admiral William McRaven, Commander of the US Special Operations Command wrote a book called Spec Ops. In it he discussed six principles that make special operations successful – Simplicity, Security, Repetition, Surprise, Speed and Purpose. Purpose helps drive meaning and internal motivation that overcomes the barriers along the way.  It turns something from a want to a MUST.

Gallup has shown how giving people meaning at work drives performance (after all if you don’t care about the problem then less likely to solve it). Angela Duckworth identified ‘grit’ as a key component of successful people – that tenacity to keep on pushing forward towards a goal despite obstacles, hurdles and failure. She found out it was a bigger predictor of success than IQ.

‘Desirable Difficulties’ describes the notion that there can be some advantages of a disadvantage. For example, a person from  a ‘constrained’ background may be more resilient,  more resourceful and may have more drive to succeed than those born into affluence.

No way out – When you offer people an ‘early exit’ strategy it allows people to opt out, and not keep pushing. If there is no way out of something, then people are forced to keep on pushing.

Utilising different emotions – Negative emotions can be a powerful driver leading to persistence, commitment and focus. Dan Wieden (W&K advertising) likes a milder form of fear – anxiety. “If you can remain insecure, yet optimistic, you’ve got a pretty good chance of changing the world”. Many brands are born from dissatisfaction with the category.  BrewDog came about because its founder hated the ‘mainstream, industrial, monolithic, insipid, bland, tasteless, apathetic beers that dominate the market’, making them into the ‘punks’ of beer.

The UK pub chain, JD Wetherspoon was named after a teacher who told Tim Martin he would never amount to anything. 

Juxtaposing an ‘away from’ negative emotion with a ‘towards’ positive emotion offers an even greater chance of success.  Research has shown that the most successful problem solvers toggle between looking at a broad range of stimuli (which relies on positive emotional energy) and then switching o a focused persistence (ideally driven by fear and anger as these help you really focus your energies). Jack Dorsey, the founder of Twitter and Square talked about this value of tension in setting up his businesses.

Prof. Gabriele Oettingen, the head of Motivation at New York University has distinguished three approaches to reach a desired outcome:

– Indulging – Create a vivid picture of what it would look like if (so inspired by its positive emotions).

– Dwelling – Sitting in a place of negativity where think of all the things that could go wrong or what would happen if did not achieve this goal. This creates the anxiety and fear that motivates.

– Toggling – The most effective space. It’s a bit like an electric motor – the shifting between -ve and +ve creates the drive.

Critically though, it does need a plan that gets actioned!

Stanford’s Design for Extreme Affordability is one of the most difficult courses to get into (only 6% applications accepted). They look for EQ (emotional intelligence) as much as IQ as they realise the inter-relationships between the students is critical to problem solving. They deal with high stress situations (e.g. premature babies) so they need to remain calm under pressure.

The fertile zero

The resource curse – Countries rich in natural resources tend to do worse economically than those without resources (Norway accepted) as excess resources leads to complacency. This theme runs true with organisations and individuals.

Tobacco companies bankrolled Formula one for decades. In 2005 the gravy train ended with the banning of tobacco sponsorship. Ron Dennis, the leader of McLaren instructed that every single process be interrogated to identify areas of savings and improvement. This led to many step change processes, one of which included reducing pit stops from 4sec to 2.5sec.

Sometimes going for ‘zero’ can unlock new creative solutions. Some routes to explore are:

– Drama & surprise – BrewDog had no money and hence no advertising (in a category where advertising drives sales). This forced them to be creative and make the brand come alive in social media. Drama helps the brand stand out, create attention and engages emotions. It also promotes conversation and creates memorability. It’s recommended to be ‘unexpected’ to create surprise.

Warby Parker, the eye wear specialists created an unexpected annual report where they talked about the inner workings (including unexpected facts and mistakes).

Prof Sir Andre Geim found it difficult to convince his science peers about electromagnetism – so he levitated a frog to bring alive the power of electormagnatism.

– Being interesting on the inside – If you do not have the budget to talk about yourself, you need to get others to talk about you. To do this you need a great story. If it’s not interesting, it’s not shared.  Thus the focus is on creating interest.

Sailor Jerry Rum was created by an advertising creative called Steve Grasse from his agency Quaker Mercantile. Ironically he built it with no advertising spend. The brand was built through support of grass roots movement amongst punk bands  and a clothing range (Grasse talks about how it is key to be true to the tribe you want to engage). He claims that because he did not know how rum brands were meant to ‘behave’ he did it his own way, defying the conventions of the category.

Grasse’s next project was recreating old pre-industrial folk recipes such as Rhubarb tea (The story behind this is Benjamin Franklin brought rhubarb seeds to America and gave it to the King’s Botanist, John Bertram who developed a tea from it).

Cordarounds sell corduroy trousers with their ridges running horizontally rather than vertically. They are distinctive and it creates a talking point.

Aesop beauty brand has grown to 43 stores worldwide.  They want to put intelligence into beauty.  Thus their shop staff were asked to refrain from mindless small talk/chatter.

– Making a secondary medium your primary idea platform – This is about owning a distinctive media space.

Alcohol advertising was banned in the 80’s in France. Heineken developed different bottle shapes and sizes to match different drinking occasions, helping it grow by 600%.

– Alliance to scale – Building new types of partnership. History has shown great advances are made when there is a strong coalition of people working towards a common goal

CitizenM did not have money for mass refurbishment. Vita, the Swiss furniture company also did not have the money co-develop retail outlets. A coalition meant Citizen M got their lobbies decorated for free, and Vitra got a showroom in every city.

– Other people’s resources – Using customers and consumers as your R&D resource.

– Commercial innovation –

Vitamin water developed an alliance with the rapper 50 Cent.

English Rugby needed to raise £2.5m in 2011. They placed a £250,000 bet with the bookies that they would win.

Constraint driven cultures

The culture of an organisation influences the accepted behaviour. Often the history (the ways the company does things) and the values of the founder/senior leaders can deeply affect current behaviour. Embracing constraints is part and parcel of some organisation’s culture.  The key success factors appear to be:

-Big ambition and strong intent

-Start from the top and empower key people

-Make it central to the business

-Be consistent

-Be willing to challenge and interrogate every partnership and process

-Be a storytelling culture

Ingvar Kamprad, the founder of IKEA came from Smaland, a place that used the rocks from the fields to build the walls and the road. Kamprad was always looking at ways of reducing/using waste (hence why he used the feathers from plucked chickens to make affordable duvets). Such attitudes run all the way through IKEA.

Nike had a problem with workers not wearing face masks to protect from the toxic fumes from the glue. Rather than monitor them 24 hours a day, they instead developed a less harmful glue.

Unilever’s goal is to double its size whilst halving its environmental impact by 2020. They do not have all the answers, but feel committed to work through the solutions.

Change success takes a number of different factors – if any one of them is not done then it will not lead to the high levels of success:

Summary

Constraints make us search for solutions in new areas. They make us ask different questions and rethink things. Constraints help us expand, not constrict. In the global competitive world, we need to create  better solutions, and constraint thinking is a powerful tool to inspire new ways of thinking and doing.

 

Critique

This is a beautifully designed book (just study their models – well thought through but then beautifully executed through design). It’s full of anecdotes and good practical information (although as is often the case, I felt it was running out of steam towards the end).

One of the issues is that the culture must be tolerant of constraint thinking. Raising some issues/questions inside an organisation can be difficult. Mavericks in my experience are rarely tolerated, preferring people who do not challenge the status quo.

Also we need to beware of ‘constraint fatigue’.  If managers over play the ‘Let’s build in an artificial constraint’ then managers (who already have enough constraints anyway) will just tire of such punitive demands.

Defining the brand story

Posted in Advertising, Brands, Change, Creativity, Decision making, Leadership, Management, Marketing, Uncategorized | Leave a comment

How Brands Grow – What marketers don’t know by Byron Sharp (Summarised by Paul Arnold – Facilitator, Trainer and Strategic Planner)

how brands grow

THE BOOK IN A NUTSHELL

The book challenges conventional ‘wisdom’, replacing it with empirical facts. Its key conclusions are:

  1. Growth primarily comes from gaining new users (penetration) rather than driving increased loyalty. Most of a brand’s users will be light users.
  2. Brands need to build physical availability (distribution) and mental availability (saliency).
  3. Even though brands differentiate themselves, in reality consumers still react (and buy) within a repertoire (as if there were no differences). Indeed, distinctivity is more important than differentiation – as it helps drive saliency.
  4. Advertising works by refreshing (and occasionally building) past memory structures.

The book rejects the concepts of brand loyalty, differentiation, segmentation, Lovemarks, and targeted (i.e low reach) media.

THE BOOK

The key principles and laws that help reshape marketing

Double Jeopardy Law – Brands with higher market share have more buyers than brands with lower market share. They also have buyers who are slightly more loyal.

Retention Double Jeopardy Law – All brands lose customers in rough proportion to their brand size (i.e. brands with higher market share lose more buyers than brands with lower market share). That said even though the percentage of its total brand universe is smaller, the sheer size of the brand mean the actual number of lost customers for a larger brand is bigger.

Pareto Law (60/20) – c60% of a brand’s sales come from just 20% of their buyer base.

Buyer Moderation Law – Buying tends to regress back toward the mean – i.e. high volume purchasers in one cycle tend to buy less in the next cycle, and low volume purchasers tend to buy more in the next cycle. Likewise some non-buyers become buyers (and some buyers become non-buyers).

Natural Monopoly Law – Brands with higher market share have a greater proportion of light users than brands with lower market share.

Brand user bases seldom vary – Competitor brands sell to the same customer profiles inspite the efforts to segment and differentiate (i.e. there is less brand differentiation and segmentation of user bases than we think).

Attitudes and brand beliefs reflect behavioural loyalty – Consumers like and know more about the brands they buy more regularly (and know very little about brands they do not buy). Because larger brands have more regular users, they always score higher in brand attitude surveys than other brands.

Usage drives attitude (or ‘I love my mum and you love yours’) – The attitudes and perceptions for a brand amongst its users are very similar, irrespective what brand it is – because we all like the brands we choose to use.

Law of Prototypicality – Image attributes of a brand that are more closely tied to the category always score higher than attributes less associated with the category.

Duplication of Purchase Law – A brand shares most of its customers with the largest brand and the least number of its customers with the smaller brands – e.g. If 30% of a brand’s buyers also bought brand A in a period, then 30% of every rival brand’s customers also bought brand A.

NBD-Dirichlet Model – A mathematical model that explains many of the above principles of how often buyers purchase from a category and which brands they buy.

Evidence based marketing

In reviewing nine leading marketing text books, they found it full of unproven ‘advice’. All the texts reinforce and support each other in suggesting a set ‘way’ of doing marketing. Many things we have been led to believe are important have now been shown to be less important. Examples including changing packaging, running advertising that jettisons its past, over-investing in loyalty programmes, promoting with deep discounts to recruit new users and spending on low reach media.

Through empirical analysis, we can now separate facts from myth:

From (old myths)

To (the facts)

Positioning

Saliency

Differentiation

Distinction

Message comprehension

Getting noticed; Emotional response

Unique selling proposition

Relevant associations

Persuasion

Refreshing & building memory structures

Teaching

Reaching

Rational involved viewers

Emotionally distracted viewers

Attitudes drive behaviour

Behaviour drives attitude

Brand switchers

Loyal switchers

Involvement

Heuristics (i.e. short cuts to meaning)

Growth through driving loyalty

Growth through driving penetration (of light users)

Price promotions win customers

Price promotion rewards existing users

Target marketing/segmentation

Sophisticated mass marketing

We compete on positioning

We compete with all brands in the category

Message comprehension

Getting noticed, emotional response

Unique selling proposition

Relevant associations

Teaching

Reaching

Campaign bursts

Continual presence

 

How brands grow

There are now over one million brands that obey some basic principles:

  1. The larger the brand share, the greater the number of customers – Whilst in theory you could have two brands of the same size – one with a few buyers who buy frequently and an other with a lot of buyers who buy infrequently, the reality reveals that all brands obey the same rules – they all have lots of buyers who buy the brand infrequently.
  2. Loyalty varies in line with brand share – Loyalty does not vary as much as brand shares but it does reflect brand share in that big brands have slightly higher loyalty levels than small size brands).

Washing powder brands (UK)

Market share (2005)

Annual penetration (2005)

Average purchase frequency (2005)

Persil

22%

41%

3.9x

Ariel

14%

26%

3.9x

Bold

10%

19%

3.8x

Daz

9%

17%

3.7x

Surf

8%

17%

3.4x

Even when you have highly differentiated brands in a category (such as Head and Shoulders and Vosene) still follow the Double Jeopardy Law. H&S had a brand share of 11% (Vs 2% for Vosene) in 2005, an annual penetration of 13% (vs 3% for Vosene) and average purchase frequency of 2.3x (vs 1.7x for Vosene). In other words, the larger the brand, the more buyers (and the average frequency of purchase is also higher).

Net, the way to boost the loyalty level is not through a loyalty campaign but by increasing the user base.

3. Brands primarily grow by increasing its number of users – Ehrenberg studied the success of 157 brands and found the factor most closely linked to their growth of decline was increase (or decrease) in its user base. The IPA advertising effectiveness awards found in 82% of the 880 papers entered reported growth from penetration (and just 2% from loyalty).

Penetration strategy

Loyalty strategy

Gold winners

21 papers

2 papers

Silver winners

20 papers

6 papers

Bronze winners

18 papers

3 papers

No medal awarded

41 papers

89 papers

Source: Binet & Field 2007

Niche brands – The core principle of niche brands is they have fewer, but more loyal customers. The reality is there are very few true niche brands. Most still have a wide number of buyers who buy them infrequently.

Cross-selling – Multiple products under a brand is also a common strategy for growth. But cross selling is just another form of loyalty and thus follows the Law of Double Jeopardy – i.e. the greater the size of the brand, the higher the level of cross selling.

How to grow your customer base

The marketing facts of life are that brands will always lose buyers each year. Indeed they follow the Law of Jeopardy – i.e. the larger the brand size, the more customers they lose (even growing brands). The larger the brand the higher its loyalty. The smaller the brands the slightly larger its defection rate.

Defection rates Car brands in UK & France (1986-1989)

Penetration %

Defection %

Ford

27

31

Nissan

6

45

VW/Audi

5

46

Peugeot

5

57

Renault

4

52

Citroen

2

48

Toyota

2

50

Honda

1

53

Source: Colombo, Ehrenberg & Sabavala, 2000

A study by Riebe (2003) showed that in the pharmaceutical category, brands that were in decline shared the same level of defection as successful brands. The issue for their decline was primarily to do with their inability to gain new users. She also replicated the study in France for shampoos and chocolate bars which supported her findings – that loyalty declines with market share.

Financial Institutions in Australia

Market share %

Defection %

CBA

32.0

3.4

Westpac

13.0

4.3

Bank SA

1.4

5.0

Adelaide Bank

0.8

7.0

Ave Defection rate

4.8

Source: Roy Morgan Research

Net: It is essential for a brand to develop an acquisition strategy if it wants to grow.

Which customers matter the most?

All marketing books propose targeted marketing as opposed to mass, blanket marketing. Today the trend is for targeting ‘influencers’ through ‘new’ media. Yet forming deep relationships with a substantial number of users in unlikely. All brands have many lighter users, and these lighter users contribute significantly to sales volume. Even for a brand like Coca Cola, light users dominate. And this is also the same for smaller brands. Marketers often forget how infrequent their average buyer buys (For example 30% of Coca Cola buyers do not even buy once a year. For Pepsi, it’s 50%). At the other end, just 4% of Coca Cola’s total buyers deliver almost 25% of total sales. These people are easy to market to (because they are often in your aisle, and are more likely to notice your advertising). You can argue that it’s not the best use of marketing funds to aim at these people as they are already committed buyers. It’s the infrequent buyers who are the majority of your user base. Pareto’s Law for Marketing is not 20/80 but more like 20/60 (ie 20% of buyers accounts for 60% of sales).

Furthermore, we misunderstand what light users are. Approximately 14% sales in a year come from people who had not bought the brand the year before (these are light users yet would be classified as ‘non users’). Likewise, the heavier buyers tend to buy less than they did the previous year – i.e. lighter buyers get heavier and heavier buyers get lighter (= a regression to the norm for all buyers):

% brand sales year 1

% brand sales year 2

Non buyers
(i.e. 0 purchase year 1)

0

14

Light buyers
(i.e. 1 purchase in year 1)

14

16

Medium buyers
(i.e. 2-4 purchases in year 1)

43

36

Heavy buyers
(i.e. 5+ purchases in year 1)

43

34

Source: Anscheutz 2002

Brand numbers may appear fairly static over time but in reality there is a lot of individual fluctuations within those numbers. People do ‘jump’ category – it’s not the same people who remain in one category all the time. Thus a brand does need to reach a wide range of users as they all change. Marketing aimed at the vast number of light users and/or non-buyers has been shown to be more effective – thus broad reach, mass marketing is the way to build a brand.

Our buyers are different

All brands assume their brand is clearly differentiated from the other brands in the category, appealing to a discrete and distinctive target group. Sadly this is not the case. The profile of the typical buyer is the same for all the key brands.

A historic piece of research compared the personality profile of buyers of Ford and Chevrolet and found they were essentially identical. More recent studies (mainly by Ehrenberg & Kennedy) have profiled hundreds of brands from dozens of categories (from cigarettes to mortgages) over time. The studies examined hundreds of variables (demographics, psychographics, values etc).

The key discovery was that competing brands sell to the same sort of people.

Perception, attitudes and intentions do not differ much across the different brand’s customer base – for example the ‘I love my mum – and you love your mum’ syndrome: Consequently buyers of Brand A think as well of their brand as buyers of Brand B think of their brand. People who regularly hire a Hertz find them to be clean and have attractive rents – as do people who hire Avis etc.

An associated (but different) piece of research (by the Ehrenberg-Bass Institute) shows how everyone has the same reasons for choosing their last holiday destination – irrespective of which place they went to.

New variants – Marketers often launch new variants in the hope that it will reach different people. But the reality is they rarely differ. The reality is the customer bases of brands in a category are very similar (the key difference is just the sheer numbers) – Versace sells to the same people who buy Gucci!

Who do you really compete with?

Marketing has moved from mass marketing to target marketing through segmentation. The facts suggest that people buy across a category and are rarely solus brand users.

Buyers of Brand….

%age of buyers who also bought regular Coke

Diet Coke

65

Fanta

70

Lilt

67

Pepsi

72

Source: TNS

Buyers of brand…

Carte D’Or

Walls

Ben & Jerry’s

Haagen Dazs

Nestle

Mars

Carte D’Or

15

8

8

9

4

Walls

34

7

8

9

3

Ben & Jerry’s

38

14

26

13

8

Haagen Dazs

37

17

26

8

8

Nestle

39

17

12

7

9

Mars

41

12

18

17

22

AVERAGE

38

15

14

13

13

7

Source: TNS

Likewise, research by Ehrenberg has shown that customer gains for BMW in France come more from large non-premium brands like Peugeot and Citroen than from other premium brands like Mercedes and Audi.

Thus, it is unlikely than any brand owns a discrete segment of buyers. Most brands share (and hence fish) from the same pool of buyers (and in line with the size of the brand). The Law of Duplication of Purchase predicts that a brand will lose more customers to the largest brand within a category (and conversely, will also gain the most number of users from them). This again suggests a move back to mass market media (especially TV) to reach as many of the category purchasers as possible. The individual messages helps draw attention to a brands (minute) differences that may ‘nudge’ people on a temporary basis to choose that brand (but we know they will also buy other brands later on).

Research suggests that one of the biggest drivers of segmented buying of brands is distribution. If people can buy all the brands in the same place, then sales will spread across all those available. Collage for examples sells all its toothpastes in one place. If a brand has a unique route to market, then its more likely to have a differentiated user base.

Passionate consumer commitment

We know that familiarity breeds liking – i.e. prior experience of a brand makes a person more favourable to it (so a Coca Cola user will like the taste of Coke versus Pepsi and vice versa). We also know that brand cues can influence their perception (e.g. McDonald’s French fries taste better when you know they are from McDonald’s than when left unbranded).

Whilst brand loyalty is not perfect, a brand that has a greater emotional closeness is more likely to get greater than fair share purchase from an individual (they will still buy other brands as well). Brand loyalty helps us save time and effort in reviewing all options.

There are very few people who are solus buyers (and no brand is made up of solus buyers) – the average number of solus buyers for a brands is about 13% (i.e. 87% are multi brand buyers). We also know from the Double Jeopardy Law that larger brands will have more sold buyers and smaller brands will have less.

Category

Annual Category purchase rate

Brand

Brand share

100% loyal buyers

Analgesics

5.1

Tesco

22%

37%

Neurofen

8%

27%

Deodorants

5.6

Lynx

17%

21%

Dove

7%

17%

Breakfast cereals

21.5

Kellogg’s

29%

7%

Weetabix

9%

2%

Yoghurts

29.7

Muller

24%

7%

Danone

3%

2%

Source: TNS

Larger brands tend to have a higher proportion of light users due to the statistical nature of larger numbers (also known as the Natural Monopoly Law). For example, if you were to just buy one can of Cola a year, it is more than likely it would be Coca Cola.

Likewise, heavy category buyers are more likely to buy more brands. Thus, smaller brands are more likely to also be bought by the heavy category buyers (who will by definition be the most common buyers of the larger brands as well). Hence buyers of the smaller brands tend to be bought by people who are heavier category buyers. To illustrate, Cross & Blackwell sauce buyers on average buy tomato sauce 8 times a year (i.e. twice as much as the average purchase rate) – even though they only buy C&B 1.2 times a year.

Tomato Ketchup brands

Market share%

Penetration %

Frequency of buying this brand each year

Frequency of buying any tomato sauce each year

Heinz

5.3

50

2.9

4

Daddies

4

5

2

6

Cross & Blackwell

1

2

1.2

8

Source: TNS

Buyers tend to restrict their repertoire to a smaller range within a category. For example, a household with a choice of 80 channels, tend to switch between only 12 channels (effectively ignoring 85% of channels). Interestingly, when the choice increases to 200 channels, people still tend to stick to just 12 channels.

Lovemarks – Many marketing texts talk about creating value, delivering customer satisfaction, building relationships and creating engagement. This makes us ‘see’ their behaviour through such lenses i.e. the reason why a person buys a brand is due to this emotional connection the brand has created with the individual. Yet these theories (especially as proposed by Kevin Robert’s Lovemarks) are largely untested assumptions. We do not ‘identify’ with most brands in the same way we do with our sports team. Consumers are busy people and do not have the time to reassess decision-making every time they walk into a store. Furthermore, the risk of a bad decision over a tin of soup is so low to mean there is no seriously bad choice. In reality, most brand choices are routine, passionless* and often unconscious – thus brand loyalty is not an active choice but a passive one.

(*Research by neuroscientists reveal there is only very slight emotional responses to brands).

When we see a consistent image score (e.g. ‘Hertz rents attractive cars’) we assume then people constantly think that. But when you dig into the individual data lines, you find individuals shift their attitudes on brands – some go up and some go down – so under the seeming static-ness of the number actually lies a lot of fluidity. This does not mean that consumers are permanently shifting their attitudes towards or away from the brand, but it appears consumers are often in flux (and hence their response can depend on what’s going on at that moment for them). Thus one time they may fancy Hertz, and another time Avis. At this point, minutiae of influences can nudge a person one way or the other (and not all of these influences are brand driven).

Australian

Financial Services Brands

%Initial agreement to statement ‘Would value me as a whole person not just a transaction’ % of the first score that repeated their agreement with the statement. Respondents who agreed in both surveys
ANZ 11 53 .53 x 11 = 6%
St. George 11 35 .35 x 11 = 4%
Colonial 6 33 .33 x 6 = 2%

Source: Ehrenberg-Bass Institute

Net what we think about a brand is not absolute nor is it static. In reality, most people rarely think deeply about most of the brands they use.

Brand fanatics – there are obviously some people who are 100% loyal to a brand. Some are loyal because they are such infrequent buyers (e.g. once a year) whilst others are regular, solus buyers. This may be due to rational decisions (e.g. availability) and in some cases it’s because they are fanatical about the brand. Curiously any brand can have a few fanatical loyalists (including 7-Eleven!). Apple and Harley Davidson are the poster boys of emotion driven brand loyalty.

The facts are that buyers of these two brands also buy other brands in their category (Buyers of Harley Davidson buy other brands twice as often as they buy a Harley). Apple’s repeat buyer level in 2002/3 (i.e. loyalty) was only slightly higher than average (and significantly less than Dell). Nike is no more loyal than other brands bearing in mind its market size. This is not to say these brands do not have fanatical followers, but they are a small percentage of their total buyer base and hence revenue (and may not be any larger than many other brands). Sadly these brands do not get a good advocacy kick via social media (as evidence suggests people only talk about new things they are doing or buying, not established patterns).

Net – we like what we buy (and may well find post rationalised excuses for what we did not buy). Most buyers think and care little about the brands they buy – and even less about the brands they don’t buy.

Differentiation versus distinctiveness

Rather than aiming for meaningful differentiation, seek instead for distinctiveness (that may be free from meaning). We need to quickly establish a brand within consumers mind – and being distinctive helps make a brand salient.

There is little empirical evidence offered in text books that a differentiation strategy actually leads to brand growth (yet there is evidence that most brands in a category have similar rivals). Most people buy within a category for the generic benefits of that category – which everyone offers. Thus for many brands the areas of differentiation are marginal (and temporary) and thus have limited influence on purchase patterns.Often any differences are quite functional (e.g. American brands are perceived as American, and expensive brands perceived as expensive.

Likewise brand personality. The reality is users of different brands see them in the same way. It could be argued that brand personality is a misguided concept as few people imbue brands with human-like qualities (for example, only 3% of British consumers think their condiment is ‘charming’).

Brand

‘Trusted’

‘Efficient’

‘Rapport’

‘Relevant’

‘Solution’

‘Innovative’

‘Essential’

FedEx

95

94

84

79

69

60

39

Brand ‘A’

96

95

85

81

72

63

37

Nokia

96

83

75

67

65

89

22

Brand ‘B’

97

87

82

76

75

47

32

Brand ‘C’

94

78

72

70

75

54

46

Oracle

93

83

73

53

60

85

19

Brand ‘D’

94

90

85

58

81

66

23

AVERAGE

94

87

79

69

71

66

31

Source: Collins 2002

Marketers strive to create unique imagery for their brands. But a study of 130 brands in 13 product areas shows that people rarely (i.e. 3%) see a brand as exclusively owning a particular image or attribute. The more successful brands do not appear to have unique associations. The reality is they will all own the core attributes of that category.

Differentiation does exist. Every category will have brands that differ on the fundamentals of price and quality. But how important is differentiation? The fact that loyalty does not vary significantly between brands suggests it is not as important. Furthermore, if important, then surely we should see a matching with different consumer segment types (who may favour that point of differentiation)? But again we have found competing brands sell to very similar customer bases. Brands that are very differentiated should be selling to more discrete audiences – but this is not the case (as heavy category buyers in particular often buy a wide number of competitive brands).

The NBD-Dirichlet mathematical model assumes that brands compete as undifferentiated options – and this has been validated across many different studies on many different categories in many different countries. Net, brands are much more similar than we like to think. Differentiation as a concept is more important at a category level than a brand level (For example, KFC, McDonald’s and Pizza Hut all have minor differences from their respective main competitors (like Burger King, Dominoes etc), but are differentiated from each other in the competing fast food category). Differentiation is a concept that lives in theory but dies in practice. It’s not how the real world works.

So how do people really chose between branded options? Studies reveal that most people (i.e. average 89%) do not see their brand as being very different from its competitors. Even brands like Apple. 77% of its user base say they do not see it as different or unique from other brands. We may talk about Apple’s design, its user interface and different operating system, but for most people it still helps them look at things on the internet, send emails store photos, and write documents – like every other computer does. Thus, if they do not see these brands as being different, then it can’t play a big part in influencing their purchase.

In reality, most people do not need a point of differentiation to buy a brand (or keep on buying it). In many cases, brand choice can be a trivial decision, with little thought and gentle influence. People by and large do not spend a long time ‘comparing’ across brands. Hence many people do not really know the differences between brands (they know a little about the brands they use, and near nothing about the brands they do not use). This threatens many theoretical models on information processing (such as Alpert ’71, Fishbein & Ajzen ’75 etc.). Thus it is not essential for marketers to convince buyers that their product is different for them to buy it.

Category

Current users who perceive their brand as being DIFFERENT %

Current users who perceive their brand as being UNIQUE %

Spirits

20

27

Supermarkets

25

21

Skincare products

17

21

Ice-cream

14

11

Fast food

16

13

Banking

13

10

Soft drinks

11

9

Condiments

10

9

Ready sauces

9

7

IT

9

10

Soups

8

5

Yoghurt

8

5

Cars

9

6

Water

6

6

Electronics

4

6

AVERAGE

11

10

Source: Romaniuk, Sharp & Ehrenberg

Distinctiveness – an alternate perspective

Distinctiveness helps make a brand ‘stand out’ in our mind and memory. Of interest, there need not be any meaningful purpose of the point of distinction (as its role is merely to drive saliency).

Some elements that drive distinctiveness include colours (e.g. Vodafone red), Logos (e.g. McDonald’s arches), Shapes (e.g. Toblerone), Tag lines (e.g. Nike – Just do it), Symbols/ Characters (e.g. Micky Mouse’s ears), Celebrities (e.g. Tiger Woods for Nike), and advertising styles (e.g. Priceless campaign by Mastercard). When you have a distinctive feature it should be regularly featured in all communication material to install into long term memory. This also helps build a sense of familiarity, which creates an emotional reassurance of the brand (and this in turn helps nudge purchase). Since most brands have a long tail of irregular buyers, distinctivity helps bring the brand to mind, encouraging re- purchase. When a brand drifts into the deep recesses of the mind, the opportunity to be considered when the consumer buys into that category is diminished.

These points of distinction need to be learned by the consumer and this takes time (and consistent exposure). For example, Nike first introduced its ‘swoosh’ in the 1970’s.

How advertising really works

Fact: advertising works. If it didn’t then why would very smart organisations around the world spend 2% of the world’s GDP on it? 40 years of single source data (i.e data trains linked to individuals) from a wide range of categories has provided solid empirical evidence that advertising drives sales amongst those exposed to it. The reality is not every ad sells. – some copy is more effective than others (and it’s not necessary for that copy to be rational to be persuasive).

The increasing knowledge we have has helped us redefine some of the key principles of advertising:

From (old myths)

To (the facts)

Rational OR Emotional

Emotional AND Rational

Message comprehension

Getting noticed; Emotional response

Unique selling proposition

Relevant associations

Persuasion

Refreshing & building memory structures

Positioning

Saliency

Teaching

Reaching

Primarily, advertising works by creating and refreshing memory. Most decision- making is heavily influenced by emotions. Du Plessis states that emotional content in advertising helps gain attention. ‘Emotion’ also lifts the liking of ads (which in turn leads to greater attention (and increased branding) and from there, greater influence and sales).

Brand advertising affects the buying behaviour of consumers. It’s impact is long term, more subtle yet more effective than short term promotional driven advertising. That is because of two things:
1) The advertising effect is laid down thinly over a long period of time (especially for large brands as their ad spend is relatively small versus all the other ‘impacts’ the brand has due to its size). The effect is like the decent path of a plane – the higher it climbs, the longer its influence.

2) Most advertising just maintains market share (as few advertisers invest big enough to really shift the needle).

Most brands have a long tail of light users. The committed heavy users is so ingrained in their behaviour, that the advertising will have little impact. However, the advertising reminds those light users of the brand and so ‘nudges’ their behaviour (do not under-estimate the impact of a slight nudge on millions of potential customers). If a brand does not remind these light users, then the brand fades from memory (and is further pushed back by the advertising of other brands) and so is less likely to be used again. The bigger the brand, the more light users it has and hence the more money it needs to spend to reach them all (and so needs to use broad reach media rather than discrete channels).

Advertising needs to be processed (ideally consciously but can also be unconsciously) to build memory structures. The trouble with so much vying for attention, advertising’s first role is to cut through (hence the use of creativity). Emotion is the primary source of human motivation so engaging and evoking emotions is often critical in advertising.

The key way advertising works is by building (and occasionally refreshing) memory structures. This helps people more readily recall the brand, making it more top of mind (salience). Continual presence is more effective than short bursts of advertising as it stops these memory structures from fading away.

Rational advertising that tries to convince through providing some meaningful new information to persuade can work (but are often dry and so fail to cut-through). Rational messaging is better absorbed if wrapped in emotion (e.g. ‘Goodyear tyres reduce braking ability’ Vs ‘Keeps your loved ones safe’).

Net, use broad reach media, with emotional elements and aim for continuous exposure to build a brand.

What price promotions really do

Price promotions have an immediate and dramatic effect on short term sales. It is the easiest to change. But in most cases it is artificial and short lasting. Price promotion primarily rewards current users. They have not been shown to bring new users permanently into the brand.

Each brand has a ‘normal’ (expected price) to pay and most categories have pricing tiers – ranging from economy up to premium.The belief is some people are premium brand buyers and others want to buy as cost efficiently as possible. Research however suggests people buy across the pricing range, even within a category:

Buyers of…

%age buying cheapest instant coffee

%age buying regular priced instant coffee

%age buying premium priced instant coffee

%age buying most expensive instant coffee

Cheapest instant coffee

100

64

57

36

Regular priced instant coffee

69

100

51

30

Premium priced instant coffee

66

55

100

39

Most expensive instant coffee

78

61

73

100

Source TNS

For some brands, more than half its sales come from discounted prices (which raises the question, what is the real price of the brand?)

For retailers and many brands, promotions have become ingrained into their plans without any real thought to their impact. So why do brands run price promotions? The two most common reasons cited are to drive sales/profit and attract new users. Sadly neither of these are supported by empirical evidence.

Ehrenberg, Hammond and Goodhardt (1994) found that almost everyone who bought a brand during its promotional period had bought the brand previously (and so marketers have given away profit (because they would have bought it at the full price).

Furthermore, promotions tend to pull sales forward (so you get a dip in sales post promotion).

But does it bring back infrequent buyers? Price promotions do bring in a lot of infrequent buyers, but these buyers then drop back out afterwards.

Do they bring in new users? Promotions do jolt short term purchase but it does not change their overall buying profile.

So what is the average volume a brand can expect? Studies have found a fairly consistent level of price elasticity (i.e. the %age change in volume for a 1% change in price). Danaher & Brodie (2000) found a -2.3% across 26 categories – i.e. a 23% increase in sales from a 10% drop in price. Scriven and Ehrenberg (2004) found -2.6%, and Bijmolt, Van Heerde & Pieters (2005) -2.5%. These results can be exceeded if there is a relatively big price drop versus the competition, if the promotion is heavily promoted, or if the brand has a low share.

But does price promotions increase profitability? Even with large volume rises, it often does not contribute to extra profit. That is because by cutting the price, you cut the profit margin. For example, if a brand (with a margin of 50%), drops its price by 10% this will reduce its margin to 30%. A 25% drop in price would wipe out all profit on those extra sales. Clearly these breakeven levels depend on the brands margin:

For a brand with a 30% profit contribution margin

For a brand with a 40% profit contribution margin

For a brand with a 50% profit contribution margin

Price reduction %

Increase in sales needed to match the current contribution (%)

Increase in sales needed to match the current contribution (%)

Increase in sales needed to match the current contribution (%)

1

3

2

2

5

20

10

11

10

50

33

25

20

200

100

66

Source: Sharp 2010

One of the problems with regular promotions is the re-education of the consumer base into the ‘new reality’ of the price of the brand (making them actively reject the brand when not on promotion). Regular high visibility promotions then becomes another learned memory of the brand, encouraging some people to only buy when on offer.

Net, price promotion is costly. It does not bring in permanent new users and erodes (potentially forever) the brands margins. The only real benefit is for the retailer. The recommendation is to reduce the funding of price promotion to the minimum viable and move the funds instead into longer term brand building activities such as advertising.

Why loyalty programs do not work

The marketing ‘theory’ is if a brand can develop a closer, more empathetic relationship with its consumers and offering reward points for purchase then they will become more loyal to the brand.

However this basic premise may well be misguided as empirical evidence suggests it’s not working. Indeed, some companies are now winding down their investment in their loyalty programs.

The Ehrenberg-Bass institute studied loyalty programs in Australia and observed only a weak effect. In the study there were able to predict the likely level of loyalty a brand of each size would expect with no special activity. The results show only marginal differences versus no activity:

PREDICTED Penetration of a brand this size (with no activity)

ACTUAL Penetration (through loyalty program)

PREDICTED Average Purchase frequency of a brand this size (with no activity)

ACTUAL Average Purchase frequency (through loyalty program)

PREDICTED Sole buyers of a brand this size (with no activity)

ACTUAL Sole buyers (through loyalty program)

DEPARTMENT STORES (AUSTRALIA)

Kmart

52

48

3.4

3.7

7

10

Target

42

43

3.0

2.9

6

5

Myer

34

35

2.8

2.8

5

5

SUPERMARK ETS (AUSTRALIA)

Coles

64

61

9.4

9.8

3

5

Bio

60

58

8.9

9.1

3

3

PETROL RETAIL (AUSTRALIA)

Shell

51

46

5.8

6.3

10

11

BANK CREDIT CARDS (AUSTRALIA)

NAB

25

20

7.2

9.6

63

79

BNZ

28

27

7.9

8.1

80

79

PHONE CALLS

Telecom

85

86

24

24

87

88

AVERAGE

50

48

8.0

8.4

28

31

Source: Ehrenberg-Bass Institute

Loyalty programs fall into the same trap as price promotions do. Primarily it’s the regular users who see the benefit of it and sign up, whilst infrequent buyers are less likely to engage. And of course non-users rarely even know about it.

Category

Average Purchase Frequency of consumers who joined the loyalty program

Average Purchase Frequency of consumers who DID NOT join the loyalty program

Supermarkets

27

28

Petrol Retail

13

14

Department stores

10

9

Credit Cards

10

9

Telecoms

26

26

Average

15

15

Source: Ehrenberg-Bass Institute

Net, loyalty programs produce very slight loyalty effects and do little to drive actual growth. When you take into account the cost of running such programs, in most cases there will be a negative impact on profit. Probably their most productive role is in building a database for further analysis of buying habits.

Mental and Physical availability

One of the key principles in Marketing is to make a brand easy to buy. This requires not just mental availability (i.e. saliency) but also physical availability (i.e. distribution).

Mental Availability – Brands are a very small part of people’s lives. Furthermore, it’s a very cluttered world, with lots of ‘impacts’ from TV, digital, etc vying of your attention (c300 ads a day). The typical supermarket stocks over 30,000 products. We simply do not have the time nor capacity to assess every option, so our brains tend to ‘satisfice’ – i.e. find a brand ‘that will do’ rather than necessarily be ‘the best’. The greater the range of choice the more likely we will satisfice (as brand choice becomes increasingly difficult). Thus a lot of brand loyalty is passive not active. Instead buyers are active rejectors of other brands (as too complex/difficult to assess so chose not to consider them as their current choice is satisfactory). Our brains naturally screen out a lot of information that impinges on our senses. Therefore a brand has to do something spectacular to be noticed.

Academia assumes we make conscious decisions in our brand choice (based on brand features and brand image) from a wide array of possible options. Yet we know in practice this overstates the role of features and brand image. Buyers do not consistently recall the same things about a brand. Many other factors affect what we remember. Furthermore consumers do not survey all options on the market. Finally many other factors outside the brand features and image will influence decision- making. Sometimes a customer is feeling extravagant, sometimes frugal, sometimes patriotic. Thus there is less predicability in decision making than the academics and research companies suggest.

So why are some brands more popular than others? It’s to do with the fact that certain brands are recalled more easily than others. Since the biggest growth opportunity comes from light users and non users the key is to get these two groups to think of your brand more often.

In the brain there are nodes of information associated with the brand (e.g. McDonald’s will have hamburgers, the golden arches etc). These links keep being refreshed through experiences such as restaurant visibility, visiting, consuming, advertising etc. The more extensive and fresher the network of memory association about a brand, the greater the brand’s saliency. The more these memories can be triggered in everyday situations, the more likely the brand will be recalled. The more distinctive these brand assets, the greater the chance to stand out and be recalled.

Physical availability – Physical availability means making a brand easy to buy. Even if you recall it, if it is not on sale in the store (or out of stock) that potential sale is lost. It also includes hours of availability and ease of purchase (such as finance). The bigger the brand, the greater the likelihood it will be available everywhere.

Research has shown the key ways to help build mental and physical availability are: Broadening distribution, Gaining a new distribution channel, Consistent use of the brand’s distinctive assets, Broad reach media, Gaining shelf space, Broad range of product varieties, pack formats and sizes.

Coupons, price promotions, pack changes and loyalty programs are unlikely to build mental and physical availability.

Unknown or risky strategies include advertising that contains new information, competitions, temporary product variants and suspense advertising (where the brand name is hidden)

SUMMARY

The seven simple rules for marketing:

  1. Reach – Continuously reach ALL buyers of your category with both broad reach comms and physical distribution.
  2. Make it easy – Ensure the brand is made as easy to buy as possible – be it availability, delivery, parking, pack sizes, ease of finance etc.
  3. Get noticed – Be salient. Be distinctive. Use emotions.
  4. Build brand memory assets – We ignore things that do not fit our ‘map of reality’. When we try to re-position a brand, it takes a lot of investment to cut against the inertia of the past memory structures. Therefore it’s often more effective to work with what you already have. If you are launching new things, it is best to link it back to existing known concepts.
  5. Create and use distinctive brand assets – Brands helps us ‘short-circuit’ the laborious task of decision-making. But the brand must first be recalled. Distinctive brand assets (such as ‘The Jolly Green Giant’, The PG Tips Chimps, L’Oreal’s, ‘Because you’re worth it’ etc. all help provide memorable hooks that make the brand stand out and hence be recalled easier. If your brand does not have one, then it needs to create one (and then invest long-term behind it).
  6. Be consistent yet fresh – Remain faithful to the existing memory structures/ distinctive brand assets – and keep them fresh. You need to keep telling the old story time and time again – but in new and engaging ways. Likewise, avoid the common marketing temptation to change things.
  7. Stay competitive – don’t give a reason NOT to buy – A large part of selection is the process of de-selection (i.e. what you will not consider). A brand is easier to buy the more times it has been bought (and the more a brand gets rejected, the less likely it is to get bought). So be careful you do not start to create barriers to purchase (be it physical or mental availability or some features). A brand spends so much time focusing on why people should buy it, they forget to focus on what puts people off buying it.

CRITIQUE

This for me is one of the most important marketing books of the past decade. Clearly, its principles need to be validated for your brands and category.

One of the big areas I struggle with is the statistics – Mediums and averages always disguise the truth. For all brands there will be loyalist and advocates at one end and dismissers at the other. Thus we must be careful not to paint a picture of all brands and all consumers being the same merely because the way numbers work, will push everything back to the average.

If this was a ‘scientific’ paper I think there would be a cry for more evidence to really support his claim (and likely the need to ‘disprove’ any counter evidence). Thus I feel he has certainly opened up the debate about the need for more empirical evidence and challenged a large number of myths.

That said, I do notice I find it hard to accept some of the principles he challenges (maybe because I am so committed to those and so have convinced myself of their veracity). For example, the view about segmentation, and insights I find it hard to completely buy (and so challenge the maths to disprove his theory – because I do not want to believe it!). Likewise I notice there are some things I believe in (such as the greater power of TV versus social media) and so easily drift over the data without challenging it.

I therefore think we need to be ‘open’ to many of these challenges but also set up testing programmes to check some of these hypotheses for our own brands.

Brain for hire copy

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2015 in review

The WordPress.com stats helper monkeys prepared a 2015 annual report for this blog.

Here’s an excerpt:

Madison Square Garden can seat 20,000 people for a concert. This blog was viewed about 66,000 times in 2015. If it were a concert at Madison Square Garden, it would take about 3 sold-out performances for that many people to see it.

Click here to see the complete report.

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Thinking, Fast and Slow by Daniel Kahneman

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Summarised by Paul Arnold – Strategic Planner, Facilitator and Trainer – paul_arnold@me.com

 

THE BOOK IN A NUTSHELL

 

We are lousy decision makers – we make faulty judgements.

The original views of humans being ‘econs’ whereby we make perfect decisions through weighing up the pros and cons of each decisions has been shown to be palpably wrong. Instead we make decisions upon limited information (What you see is all there is – WYSIATI). Furthermore we can easily be seduced by emotion and seemingly irrelevant information in our decision-making.

 

THE BOOK

In the previous millennia, social scientists and economists assumed that people were generally rational in their thinking and that most of the time our thinking was sound. However, recent work by neuroscientists and behavioural economists have shown that we don’t think logically. Instead we are unconsciously biased in our thinking which means many times our decisions are flawed. Some of the key reasons for this are:

1) We rely on short-cuts and general rules of thumb (heuristics) which are sometimes inaccurate for the situation at hand.

2) We are heavily influenced by what we can immediately recall when making decisions – and only what is ‘in field’ at the time is used to make decisions (A concept we will return to called WYSIATI – What you see is all there is).

3) Emotions and cognition (i.e. perception) easily derail our rational decision making.
4) We often answer an easier question than the difficult question posed (e.g. ‘Should I invest in Ford?’ gets answered instead by the simpler question, ‘Do I like Ford cars?’)

The problem is these happen unconsciously. Raising them to consciousness can help a bit but we are still prey to many of their effects (a bit like visual illusions, we know what’s going on but still get caught by them).

To help understand the weaknesses with our cognition, Kahnemen devised a metaphor of two parts of the brain – System 1 and System 2 (NB you cannot dissect the brain and find these two parts neatly divided into the different hemispheres).

System 1 & System 2 Thinking

The brain has two ways of working: System 1 and System 2.

System 1 is primitive, unconscious, runs automatically (and cannot be turned off). It’s emotional, intuitive, powerful, fast, impatient and impulsive. It can work on many issues/ levels at the same time. It uses little energy, quickly creates meaning out of things and is easily influenced.

System 2 is linked to the Neo Cortex. It has conscious attention (normally running at a low level but then gets attuned onto specific issues). It is rational, methodical, cautious, has small processing power, limited capacity and is single focused. It is slow, a heavy energy user, is not able to control System 1 well and is lazy. System 2 can override System 1 under normal conditions but if System 1 is highly fired up (e.g. through the power of emotions) or System 2 is tired or pre-occupied then it fails to be able to control System 1. Furthermore, System 2 is very good at making comparisons but does not perform well under pressure.

System 1 – the state of unconscious flow – Most of our actions happen unconsciously. Csikzentmihalyi has defined the state of ‘flow’ as a place of unconscious competence, where the rest of the world melts away and you lose the sense of time and become lost in the experience. It seems that we perform our best when we move from conscious control to unconscious effortless competence.

 

System 1’s flawed instant response – Q: A bat and ball costs $1.10. The bat costs one dollar more than the ball. How much does the ball cost?

In cases like the above System 1 jumps to an intuitive answer ($0.1) when the real answer is $0.05. System 2, being lazy, does not intervene unless steps are taken to activate it (e.g. when told $0.1 is wrong). Even very intelligent students fail this test.

Hoodwinking the brain by distracting System 2 – If you distract the conscious System 2 brain, then it is less able to control the impulses from the System 1. When System 2 is distracted, it allows other statements of falsehood to sneak through the System 1 brain (System 1 will believe almost anything!). This is why storytelling works so well as System 2 is engaged in the logic of the story allowing the moral to sink straight into System 1. System 2’s ability to control System 1 also diminishes with tiredness, drinking or conscious mental effort. Furthermore, the trouble with self-control is it’s tiring – being ‘on guard’ needs a lot of energy.

When people are offered two desserts: a chocolate cake or a virtuous fruit salad, they are more likely to choose the chocolate cake when they have to complete some mental arithmetic.

In a study with eight parole judges, they found no prisoners were granted parole just before lunch (when their System 2 energy was low) but the rate after lunch was 65% of cases (versus an average of 35%).

 

Another way to increase plausibility is to wrap your statement in other known truths – a silly example is ‘A chicken has 4 legs’ takes a little while longer to decipher its falseness than ‘A chicken has three legs’. Or ‘How many animals did Moses take with him on the Ark?

Also if you use high quality paper and clear print it makes it cognitively easier to read and so less likely to be judged. Also try to make the language more memorable by building rhythm, alliteration or repetition (We shall fight on the beaches etc).

Finally, quotes are more credible if it comes from a name that is easy to pronounce.

 

In experiments, ‘A fault confessed is half redressed’ was more easily recalled and thought more meaningful than ‘A fault admitted is half redressed’.

Easily pronounced words create more favourable reactions. For the first week after floating on the stock market, Companies with easier to pronounce names do better than those with less ! easy to pronounce names.

How to kick System 2 into action – System 2 is lazy and will often not get involved until triggered to – for example by making the font difficult to read.

The Criterion Referenced Tests (CRT) fool people because they suggest an intuitive System 1 answer. However when told they are wrong, System 2 jumps in and quickly finds the real answer.

Q: If it takes 5 machines 5 minutes to make 5 widgets, how long will it take 100 machines to make 100 widgets?

When the questions were set in light grey, System 2 jumped in and the respondent’s wrong answers dropped to 35% whilst in normal black font 90% of student made at least one mistake.

(A: 5 mins)

Some people have better developed System 2’s to control their System 1 thinking – Scientists have found specific genes that influence attention and our ability to control our emotions. For some they have a more developed System 2. However, System 1 dominant people instead tend to be more easily influenced (with little critical judgement), are impulsive, impatient and keen to receive immediate gratification (thus leading to ill- considered decisions and judgements). They are also prepared to pay twice as much for overnight delivery of a book than others!

Mischel offered four-year olds a choice between a small reward now (One Oreo) or a larger reward (two Oreo’s) in 15 minutes. About half the children managed the task (mainly by distraction techniques). 15 years later, they found those who resisted had greater cognitive and personal self-control (as well as having developed improved IQ scores) (http://http://www.youtube.com/watch?v=x3S0xS2hdi4).

 

Cognitive bias (What You See Is All There Is)

The way our two thinking systems work can lead to a wide range of flawed perceptions and hence decision making:

WYSIATI – We often make decisions on just a small subset of information available. If we do not retrieve useful information at the time of decision-making it may as well not exist. The trouble is our brain will only use the information it has immediately available to make its decision (A concept called WYSIATI – What you see is all there is).

We do not use all the information available to us to arrive at our assessment of a situation. Research into painful medical procedures found patients assessed the overall experience of the operation by two elements – the peak level of pain experienced and the level of pain at the end of the operation (with the length of the procedure not being a key factor).

When the Valdez oil spill happened, people were approached for donations to save oil covered birds. In one sample they were told the fund was to save 2,000 birds, another 20,000 birds and the third 2m birds. The number did not dramatically affect average donations ($80, $78 and $88).

Availability – Depending how easy it is to retrieve information on a subject will influence the quality of our decision (as WYSIATI). For example we believe there is greater divorce rates amongst actors and actresses because we hear about them more often. We think dying in a plane crash is more likely than it is – especially after a much publicised one. Furthermore, we recall our own activities and effort better than other people’s (a key problem in marriage or work based disputes is we under-emphasise the activity of the other person, and feel our part has not been recognised enough by the others).

If you ask a person to list 6 times when they were assertive and then ask them how assertive they are, they will believe they are more assertive than if not primed. Interesting if you ask for 12 examples, people see themselves to be less assertive because it’s more difficult to recall 12 than 6. Thus it’s fluency of recall rather than absolute number that is the key.

Cognitive ease – The easier it is to tangibly recreate the event in our minds (especially visually) the greater the chance it will be ‘in play’. Vividness increases its saliency. We find it easier when things are more tangible and less easy when kept conceptual – for example it’s easier to answer ‘Out of 100 people how many…’ than ‘What percentage…’ as we get a clearer representation in our heads.

Example: ‘A vaccine that protects children from a fatal disease carries a 0.001% risk’ vs ‘One of 100,000 vaccinated children will be permanently disabled’. The second statement conjures up a clearer image in your mind of a disabled child (and we choose not to picture the 99,999 healthy children). Such presentation significantly influences the decision of parents to treat.

 

Denominator neglect – Focusing on one thing takes our eye off other things. Thus what we focus on is in the ‘field of play’ and other things are consequently pushed ‘out of play’ and hence out of influence (as WYSIATI). The invisible gorilla video is a good example of how our conscious mind when focused on one thing can easily miss other things (http:// http://www.youtube.com/watch?v=vJG698U2Mvo).

Rare events – We overestimate the likelihood of improbable but highly emotional events (and often underestimate more common events), as the intensity of emotions make us recall something more vividly. This then over-influences our decisions.

 

When people are asked to assess the frequency of deaths, they over-inflate events like tornadoes, lightening attacks, and under-inflate deaths from diabetes and asthma.

Conversely if an improbable event is not easily recalled then we tend to under-estimate its likelihood).

What’s on the field is in play – A further extension of WYSIATI is ‘What’s on the field is in play’ i.e. seemingly irrelevant data gets used. For example, if you put things side by side System 1 will try to create a connection. If you add more detail you increase plausibility.

A mock jury were given a greater, more vivid description of the events from one side (with no extra relevant factual information) and it dramatically influenced the verdict.

Less is more – Too much information distracts us from the important – Decision-making is usually easier with less information than more because System 2 cannot cope with lots of information and easily gets confused. Evidence suggests that seemingly few criteria can account for a large degree of predictiveness. Dawes amusingly suggested that marital stability could be predicted accurately by just two factors: Frequency of lovemaking minus Frequency of quarrels – simple rules are best!

 

Paul Meehl demonstrated that clinical predictions based on statistical analysis of a few key metrics were more accurate than clinician’s subjective impressions based on a 45 minute interview, backed up with a raft of other information. This study has been replicated in numerous other situations. In 60% of studies, algorithms have been shown to be more effective at predictions than people.

Dr Apgar develop a simple 5 test rule to assess the health of a new born child – the now famous Apgar score.

In an experiment where a mock jury was shown one side of a dispute (even though they could easily have worked out the counter argument), just hearing the one side dramatically influenced their decision-making. Furthermore there were more certain of their decision than those who heard both side.

We know that seemingly irrelevant stimuli can influence us, whilst a computer is not distracted, and instead remains steadfastly focused on only the critical issues. Experts place too much weight on their intuitions, downgrading the importance of the key pieces of evidence – emotions steer us away from a purely rational response.

How to hire a person – select up to 6 key traits that are key to success in the role. Ideally they should be independent with little overlap. Develop some factual questions to assess each. Upon answer, convert them into a 1-5 scale. Then add up the scores and cross compare versus the other candidates. Vow to take the person with the highest score irrespective on how you feel. Resist the urge to ‘re-evaluate’ to change the rankings!

The wisdom of crowds – In some tasks people are very bad at predicting but the wisdom of the crowd is better.

Get a large number of people to independently guess the number of pennies in a jar, and the average is often close to the real answer.

Priming – We can easily be nudged to think in certain ways as we draw upon our unconscious associations.

Priming – We can easily be nudged to think in certain ways as we draw upon our unconscious associations.

People were asked to recall a situation they were ashamed of. When asked to fill in the word S_ _ P they typically said ‘soap’ not ‘soup’.

Priming does not just happen with words – your actions and emotions can be primed as well.

Psychologist, Bargh gave students a set of words to turn into a sentence. For one group he scrambled words associated with the elderly (such as Florida, forgetful, bald, grey, and wrinkled). They then had to take their test scores down the corridor. He found they walked slower than the other test group (yet none of them were aware of the ‘old’ theme).

Encouraging people to nod or shake their heads will prime then to agreeing or disagreeing to a statement.

Voting for improved school funding goes up when the polling station is held inside a school.

 In a university kitchen, they operated an honesty box system for for the teas and coffees. Over a ten week period a different image was placed above the honesty box. Alternate weeks showed either flowers or eyes. When eyes were displayed, the contribution to the honesty box was three times higher than flowers.

The symbols in a culture will unconsciously prime certain behaviour traits. So a culture full of statues of leaders prompts a different behaviour from one full of Christian images or symbols of wealth.

Decision-making by frames of comparison – We make judgements via comparisons. When buying something we find it easier to assess it alongside something else in the same category. Our world is broken into categories – and we use norms in that category to help us make decisions. However, we can easily be misguided depending upon the frame and comparative context.

 

What do you prefer? Apples or Peaches? Vs What do you prefer? Apples or Steak?

A man was shot in the arm in a convenience store. Consider two scenarios: 1) It was his usual store, 2) his usual store was closed for a funeral, so he went to this other shop instead.
Q: should compensation be different?
Whilst in theory the compensation should be the same, when people are given either scenario, we see a different level of compensation being awarded than if they see both. Because we live in a world of WYSIATI, not seeing the other side means we only make a decision based on that limited amount of information.

Imagine a situation where two people change to more fuel efficient cars:
A: Adam switches from a car that does 12mpg to one that does 14mpg.
B: Beth switches from a car that does 30mpg to one that does 40mpg.
We all instinctively think Beth is doing a better job for the planet, but over 10,000 miles, Adam’s actions has saved 119 gallons whilst Beth has just saved 83 gallons. Thus we get hoodwinked by the frame of mpg rather than the more relevant frame of gallons saved.

Context determines meaning – In the example below the image

ABC121314(I3) in the middle is the same, but in one we read it as a B (as it is surrounded by A and C whilst in the other we read it as 13 (as surrounded by 12 and 14). Thus we can easily jump to the (wrong) conclusions.

First impression bias – First impressions are the most influential and we find it much more difficult to change our minds once initially set upon a certain course of thinking. Furthermore, the mere sequencing of information can affect our perceptions.

 

What do you think of Alan and Ben?:

Alan: Intelligent, industrious, impulsive, critical, stubborn and envious Ben: Envious, stubborn, critical, impulsive, industrious and intelligent. Research shows that Alan is liked more than Ben.

When marking exam papers, if the first question the candidate answers is good, then we are more influenced to mark the rest of their questions on average higher than if their first question was poor.

Anchors – Random information can ‘anchor’ our thinking. For example, in purchasing something (like a house), we will be heavily influenced by the first price suggested.

Half the respondents were asked ‘Is the tallest redwood less or more than 120 feet?’ The other half, ‘Is the tallest redwood less or more than 1200 feet?’ When asked to guess the height of the tallest redwood, those primed with a low number (120 feet) guessed on average of 282 feet and those anchored to the 1200 feet guessed 844 feet – a difference of 562 feet based on a spurious piece of data.

When an oil tanker spilled its load in the Pacific Ocean, an experiment was run asking for donations. When no primer was given the average donation was $64. But when asked, ‘Would you be willing to donate $5 to the cause?’ the average offered was $20. When set a higher anchor of $400, the average sum raised was $143 – i.e. a $123 difference.

In a supermarket, Campbell’s soup was on offer with a sign above it. On some days it said, ‘Offer limited to 12 cans per person’. On other days it read, ‘No limit per person’. On the days with the limit, they sold on average 7 more cans per person – twice as many when there was no limit.

Even experts can get fooled

Estate agents were asked to price a property. One group of agents were shown a previous much higher value – and the other group were shown a previous much lower value. This resulted in a 41% difference in the valuations.

In negotiations, it is recommended that rather than counter with an equally outlandish offer which creates often an unbridgeable gap, instead threaten to storm out unless that opening offer is taken off the table (as need to make it clear to them and most importantly yourself that that will not be a figure the negotiations will be anchored around).

The familiarity effect – We find that familiarity makes it much easier to accept something (our critical faculties drop with familiarity – hence the power of advertising or how a politician keeps repeating a denial – after a while a repeated falsehood becomes the accepted truth).

Answering an easier question – Human beings are to independent thinking as cats are to swimming. We can do it, but we prefer not to. The brain is lazy and rather than answering the real question, will often answer the question it has the answer to. System 1 finds an easier answer so System 2 does not have to work out the real answer (and because System 2 is lazy it does not impose much scrutiny on the veracity of the answer given by System 1).

‘How much am I prepared to pay for this?’ is replaced by an (easier) emotional one such as ‘How much do I like this?’

‘How happy are you in your life these days?’ becomes ‘What is my mood right now?’
‘How popular will the President be in 6 months time becomes ‘How popular is the President now?’

 

Moods affects our cognition – What we like/dislike affects our beliefs (because we let how we feel about something influence what we think about it). When happy we are more intuitive and System 1 is in control. When distracted by negative emotion System 2 becomes more controlling.

System 1 – Making associations and meanings – System 1 creates associations to help us make sense of our world. This can lead on some occasions to making false associations.

Correlations ≠ Causation – In Black Swan, Nassim Taleb mentions how bond prices increased on the day of Saddam Hussein’s capture. The two events were linked (when it was not the case in reality). System 1 does not try to assess all possible information or all possible explanations but jumps at the first one that makes sense to it.

 

Heider & Simmel used a video of animated geometric shapes that seemingly interact. People developed a story from the movements of a bullying scenario. Interesting Autistics do not create the associative story but see it for what it is (http://www.youtube.com/watch? v=VTNmLt7QX8E).

Kidney cancer is lowest in rural communities – by presenting these two facts together we create a causal relationship such as healthier living, better quality food etc – when in reality this is not the reason.

Under normal frequent situations, when System 1 jumps to conclusions it can be accurate. However, it becomes more risky when we are in infrequent/unusual situations as we often draw upon our experiences in other situations and mistakenly try to apply it to the new situation.

Storytelling – System 1 loves storytelling as it helps makes sense of things. Storytelling is therefore not a culturally imposed phenomenon, it’s one of our basic core programs we run.

Confidence does not come from the data – it comes from the story we create around the data. The better the story ‘fits’ the ‘facts’ the more believable the story. Furthermore, we will then ignore data that conflicts with our story (as the story becomes the ‘truth’).

Nassim Taleb introduced the concept of narrative fallacy in his book Black Swan. A narrative fallacy is a past flawed story that still shapes current perceptions. The more concrete the story, the more believable it is (even if it’s not true). What tends to happen is a story is created around a few ‘nodes’ which help explain those activities. We then chose to ignore other bits of information that do not fit the story. Furthermore we extrapolate via the halo effect (i.e. if the story is a positive one we then want to see all other aspects as positive – good people only do good things….as this helps keep the story coherent and simple). Such is the desire of System 1 to make sense of things it can too easily create causal narrative that is factually untrue. But the power of the story seduces even System 2.

The Mathematics Of Cognition

Misleading by numbers – Numbers feel authentic and credible, but we can easily be misled by them. Large samples are more compelling due to their data size – but the trouble with them is they flatten out the data and create less anomalies. Thus the outliers in data gets suppressed (unlike in smaller samples). Often we ignore the impact of sampling variance on research studies (especially if the data tells a good story). System 1 suppresses doubt – it is naive and accepts things at face value. Likewise, if it makes sense, then System 2 rarely intervenes.

We are pattern seekers, trying to find order in the world. Our love of finding causal relationships forces us to often make poor decisions. When we detect a pattern in random data (such as a gambling machine) we will believe there is an order as we find it difficult to accept the concept of randomness and no order. In reality randomness does create random order.

 

Research into sports people so called ‘hot hands’ has been shown to be false.

Research into successful schools found a correlation with size of schools. This makes intuitive sense as we can build a strong narrative why this should be the case. This led the Gates Foundation to invest over $1.7bn into developing small schools. If the statisticians had investigated the worst performing schools they would have found that bad schools are also more likely to be smaller size as well (i.e. this is not the causal factor).

Base-line data – In an experiment people were asked to rank the likely course a student would do at university. Because they did not know anything about him, they defaulted to the overall popularity of courses. Next they were given a pen portrait of his personality. Drawing on this evidence they re-shifted their answer according to his traits. In theory this all makes sense. However, Kahneman argues that this is a mathematical error as the likely course will still remain most determined by the popularity of the courses overall – i.e. we make a sub- optimal more emotional decision based on System 1 and not a logical System 2 decision. We fall into the stereotype heuristic trap which dominates and clouds our logical thinking (as System 1 wants to make things tidy and organised). When in doubt we should therefore make decisions based on what is called base line data – i.e. probability data (as System 1 is more than likely to lead us astray).

The film, Moneyball demonstrated how professional baseball scouts made poor decisions based on irrelevant information (such as how someone behaved off-field). Billy Beane of the Oakland A’s ignored this and instead relied on pure data of percentage to reach first base. This allowed him to buy good performing players at discounted prices (https://www.youtube.com/watch?v=PX_c7W5RNJ8).

Regression to the mean – Our performance on anything tends to aggregate around an average – i.e. sometimes we perform better and other times less well, but over a longer period of time we will level out at our average. Thus when things are going much better than expected, we often then see a dip in performance. Likewise when we see a significant underperformance against our norm, we tend to move back closer to the line of average. This phenomenon of regression to the mean has been observed in organisational performance as well (the under-performing companies do better and the over-performing companies drop). The trouble is we are bad predictors and ignore this principle. So if one golfer shoots 66 and another 77, when asked who will score better the next day, we assume a continuation of form (as we make the misguided judgement that the scores are reflective of talent – but we ignore the regression to norm). Instead the best predictor is reference to their base line – so 66 could well do worse on day 2 and 77 do better.

The Sports Illustrated jinx (that a sports person featured on the cover will under-perform the following year) is not a jinx but the reality of regression to the mean. You need to have ! massively over-performed to be on the front of Sports Illustrated so….

Our Misguided View On Performance

Luck – Luck plays a BIG part in success. Kahneman’s model for success is ‘Talent + luck’. Great success = ‘A little more talent’ + ‘A lot more luck’.

Confidence bias – the myth of control – We tend to exaggerate our ability to control events around us and hence be overly optimistic about what we can achieve, discounting the other external factors that can slow down a project (especially competitor’s activity). Many organisations fail as they have an over-inflated belief in their ability to control situations (luck again plays a big part in a company’s success or failure – i.e. a company is never in total control of its destiny). Likewise the CEO. Just because on paper a company has a ‘strong’ CEO does not mean s/he will be successful as a large proportion of their fate (i.e. luck/no luck) is outside their control. Most of the examples of excellent companies studied in books like ‘Built to last’ and ‘In search of excellence’ have receded over time (again down to the principle of regression to the mean). Thus we have consistently over-exaggerated the effect of a CEO’s leadership ability and therefore followed illusory actions to mimic their so called leadership traits and processes – ignoring the real impact of timing and luck.

Optimism – the driving force of capitalism – Optimism is good. In life optimists are more cheerful, more popular, more resilient to dealing with hardships, and less likely to become depressed, and hence tend to be healthier (to the point that they even live longer). Optimists are the achievers, the visionaries, the entrepreneurs and the leaders in life – they make things happen around them. Their self-confidence breeds faith and following in others. When there is an issue, rather than giving up, they believe it can be solved and this perseverance helps them win on through.

Most people are born optimists. Amusingly, most people genuinely believe they are superior to most others on many different traits.

 

90% of drivers believe they are better than average (as do teachers).

Supporters of basketball teams in the playoffs were asked to rate the probability of their team winning the playoff. As to be expected each team over-rated their chances. When all the scores were added up they came to 240%.

The trouble is optimism is a highly socially valued way of being – it is more acceptable to agree and support than to challenge and pull down an idea – leading to a ‘collective blindness’. It can also lead to bold forecasts and timid decisions.

So how to overcome this disease of overconfidence? Get the team together and start with the premise: “Imagine that we are a year in the future. We implemented the plan as it now exists. The outcome was a disaster. Now write a brief history of how and why this happened.”

The illusion of predictions – Nassim Taleb in Black Swan points out our tendency to build and maintain a narrative that makes sense of the past. This makes it difficult for us to accept our limits of forecasting ability (i.e. because we have ‘made sense’ of the past, we assume we can predict the future).

System 1 jumps to conclusions with very little evidence – and we hold to these conclusions with a staggering degree of confidence.

When assessing the soldiers in the Israeli army, Kahneman and his staff independently observed the behaviours of the soldiers and then together agreed who were the excellent soldiers. The trouble was their ability to detect who did become the excellent soldiers was little better than random luck yet they still remained locked in the process (as they believed in their personal ability to predict success).

Likewise we see this in the selling and buying of stock. In theory everyone has access to the same information, so what makes one trader think the price is under-inflated and another think it is over-inflated? Why does one investor predict that the price will go up and another that the price will go down? Again this is the illusion of belief as in theory the market works on perfect price (i.e. all there is to know has already been taken account into the prevailing price).

Odean, from UC Berkeley studied the trading records of 10,000 brokerage accounts over a 7 year period (163,000 trades). On average the shares the traders sold did better than those they bought by 3.2% per year. They found the most active traders had the worst results – i.e. doing nothing would have yielded a greater return!

 

It seems the illusion (especially amongst men) that they know better than the market is wrong (indeed women who are less prone to this effect tend to be on average better investors).

The evidence from more than 50 years of research in this field is that for the large majority of fund managers is no better than rolling dice – i.e. luck. Typically 2/3rds of mutual funds under-perform the overall market in any given year. Thus so called ‘experts’ do not seem to have mastered the ability of future prediction.

Tetlock interviewed 284 people who made a living by being political and economic pundits. He asked them to assess the probabilities on certain future events in their specialised fields. In all he gathered 80,000 predictions. Comparing the results with what actually happened he found that the experts performed worse than chance – i.e. ‘dart throwing monkeys’ would have performed better. The reason is when a person becomes ‘an expert’ (based on past experience) they assume an unrealistic level of confidence in predicting the future. The reality is the world is unpredictable and we are therefore all weak at it – especially over longer time frames and dynamic situations.

When radiographers were given the same X-rays they contradicted themselves on 20% of occasions. Overall 41 studies in different areas have drawn the same conclusions that experts are inconsistent.

Assessing Risk

The power of loss – We are genetically wired/evolutionarily adapted to be more aware of risk than opportunities. Hence we do not like loss, so we also dislike risk (and are prepared to pay a premium to avoid loss).

When people are asked, how much they would need to win in order to risk losing $100, the ! average is $200 – i.e. we value a loss at twice that of a gain.

We also know this level of unease over risk increases dramatically the greater the amount at stake (cf the ‘Who wants to be a millionaire’ effect – the greater the prize the less likely you take risks with your answers). Thus the psychological value of a gamble is not focused on the possible positive uplift but more focused on the potential loss – i.e. it’s more about what is at stake to lose than what is to gain. Thus to encourage people to ‘bet’ more you need to focus more on minimising the loss rather than boosting the gain.

The threat need not be real to attract out attention.

Experiments show that negative words are picked up quicker than other more benign words. Negativity is noticed more, influences us more and stays with us longer.

Emotions are processed rapidly and unconsciously – hence why we can have irrational fears as the conscious System 2 brain is never consulted!

Animals and humans fight harder to defend their territory than to gain new territory.

Loss aversion is a powerful holding force that drives stability and certainty in our lives, our relationships, our employment and our societies.

Gotman, a German psychologists estimated that a stable relationship needs good interactions ! to outnumber bad ones by a ratio of 5 to 1.

We are driven more powerfully to avoid losses than to achieve gains – the aversion of failure is stronger than the desire to excel (hence people often just hit their goals rather than strive to exceed them).

 

Economic theory would suggest that a taxi driver would work many hours on a rainy day and then take time-off on slower days. Instead on slower days taxi drivers stay out longer to hit their daily target and then on rainy days go home early.
Professional golfers putt more accurately for a par than for a birdie (they analysed 2.5m putts to prove this).

 

Prospect theory – When all options are bad, then we are more prepared to gamble. For example when offered the following: Lose $900 for sure or take a 90% chance to lose $1000, then people take the gamble. But when offered the choice: Get $900 for sure or 90% chance to get $1000, people opt for the sure reward of $900. The disadvantages looms larger than the advantages. Thus the focusing on the negative prospects influences our decision (i.e. nothing to lose versus everything to lose).

The endowment effect – What we own we value more highly than things we do not own. Endowment effect is not universal and is more extreme on rare items.

 

Avid fans for a concert who have a ticket for a sell-out concert will only be prepared to sell the ticket for six times the original cost.

In a series of experiments in the buying and selling of unique, specially decorated university ! coffee mugs, they found the average selling price was twice the average buying price.

Finally, be aware that in negotiations, it’s often what people sense they have to ‘give-up-on’ that causes the sticking points in the discussions.

Probability versus certainty – When we make a complex decisions System 1 unconsciously assigns different weights of importance to the different factors we need to take into account. Changing the weight of importance can therefore affect the final decision.

The problem is we get seduced by different levels of probability. 0% -> 5% (i.e. ‘nothing’ to a possibility of ‘something’) and 95% -> 100% (i.e. ‘uncertainty’ to ‘certainty’) are both more highly valued that say 5%->10% or 85% -> 95%. We therefore overweight our chance of winning when the probabilities are low but underweight our chance of winning when they are high. We are therefore prepared to pay a premium to eliminate risk altogether.

You have inherited $1m but your stepsister is contesting the will in court. Your lawyer believes you have a 95% chance of winning. The day before it goes to court, a risk adjuster contacts you ! to buy the case from you for $910,000 – most people take it because they fear the loss.

 

At 95% we fear the loss more than we do if we just have a 5% chance of winning. We will pay this premium to reduce risk.

Hence life insurance plays of these fears of loss and risk, as does plea bargaining. The lottery is a very small chance of winning but you are prepared to gamble the relatively small sum for a big win.

In an experiment they found that mothers were prepared to pay three times more for a product that eliminated risk versus a product that just had a minor level of risk.

We tend to attach values to gains and losses more than to what is at stake. This led Tversky and Kahneman to propose the four fold pattern within their Prospect theory:

 

GAINS

LOSSES

HIGH PROBABILITY

RISK AVERSE
(Fear of disappointment so will accept unfavourable settlement e.g. a 95% chance of winning $100,000

RISK SEEKING
(Hope to avoid loss so reject a favourable settlement)
e.g. 95% chance of losing $10,000

LOW PROBABILITY

RISK SEEKING
(Hope of a large gain so reject a favourable settlement)
e.g. 5% chance of winning $100,000

RISK AVERSE
(Fear of a large loss so accept unfavourable settlement)
e.g. 5% chance of losing $10,000

Spreading the risk – When Paul Samuelson, a famous economist was asked if he would accept a bet on a toss of a coin in which he could win $200 or lose $100. His response was to decline on the grounds that he would ‘feel’ the loss of $100 more than the benefits of $200. However, in a perfect twist, he said he would take the bet on for 100 goes.

When we spread our exposure to risk over a greater range of activities, we will more likely come back to the expected norms. With one toss we could more easily lose $100 but over 100 we would undoubtedly win a lot of money on these odds. Thus Kahneman recommends we see these ‘little decisions’ not as isolated risk events but instead see them as all part of the 100 throws. One of the reasons for this is we do not compute multiple issues well – instead we tend to focus on just one aspect and allow that to influence our decisions (a form of finding an easier question to answer).

Thus taking risks pays-off in the long run even of it does not pay-out on each event.

Day to day examples are to never pay for extended warranties (accept you will loose on some but gain in the long run by saving the premium) and not to take the add-ons when buying insurance.

 

When 25 top managers in one company were asked if they would be prepared to support a project that had equal chance of success or failure, with the upside if successful to double the capital. None of the executives were willing to take the risk. Interestingly, the CEO said he would accept the risk from all of them as he saw the broader frame and knew that if everyone took the risk, over the 25 projects they would win out.

Money

Mental accounting – We mentally hold money in different compartments in our brain. and so treat money differently (when in truth a $ is a $). For example we may be happy to run up credit on a card yet not take money out of the school savings account (even though we are paying higher interest on the card than we earn in the savings account).

 

A: A women has bought two $80 theatre tickets. When she gets there, she discovers she has lost them, Will she buy two more?
B: A women goes to the theatre with $160 in her wallet, intending to buy two tickets. When she gets there she discovers she has lost the cash. Will she still buy the tickets?

Most think A will not but B will as she treats cash differently from the purchased tickets.

Sunk costs – We are tied down by sunk costs rather than seeing that any future decisions are free of those sunk costs (as any decision made now will not bring those sunk costs back).

A company has already invested $50m in a project that is overrunning in time and costs. An additional $60m is needed to secure its completion (even though expected returns are likely to now be lower than originally expected). There is another project that requires the same level of funding that suggests larger returns. Most companies are so blinded by the sunk costs they cannot value the two projects rationally and so will usually invest more money in the failing project (as they cannot be seen to have ‘failed’).

 

The sunk costs fallacy keeps people in poor jobs, in bad houses, under performing investments and unhappy marriages.

Fear of financial loss – You would assume we would be more rational about financial decisions but reality suggests otherwise. We hate losing money and will try to mitigate against it – which can mean we make poor decisions. Take for example the holding of two stocks. One is over performing and has exceeded the purchase price, whilst the other you would have to sell for a loss. The logic is to hold onto the over performing share, and ‘cut your losses’ and sell the under performing one. However, we get ‘anchored’ to the original purchase price of the share so we hold onto the poor performing share in the hope of eventually getting our money back (and instead sell the good share). Yet again we view each share independent of each other and thus make poorer decisions than if we viewed them all from a broader frame. We see this also in the field of gambling as well where people try to win back their losses, and merely compound their losses.

Costs are not losses – Framing something as a loss creates greater emotional feelings. So when offered either a gamble that offers a 10% chance to win $95 and a 90% chance to lose $5 versus to buy a lottery ticket for $5 with a 10% chance to win $100 and a 90% chance to win nothing, most people opt for the lottery ticket as our brain reframes the same $5 as a cost not a loss.

Life

 

Life as a story – It seems that when making judgements on broad issues like life our assessment of the quality of our life is not based on a thorough examination but only a small section of information available. As with the peak and end rule, a life well lived is often judged using the same criteria – we tend to look at the big events and our most immediate history (as those are the key ones we can remember – WYSIATI).

In an experiment describing a person’s life, one where an extra 5 years were lived, but were described as ‘pleasant, but less so than previous years’. They found that respondents judged the person’s life as being less complete when the extra 5 years were added on.

Subjects were invited to fill in a questionnaire about life satisfaction. However before they began they were asked to photocopy a piece of paper. Half of them found a dime beside the copier. This small (irrelevant) bit of positive luck caused a marked improvement of their ratings of their life!

Taking photos is increasing our modality of storing our memories – yet in many ways the stories around events (maybe triggered by the photos) is realistically the way we categorise and makes sense of our lives. The remembered life is rarely the sum of all the points in our life but rather the stories we create to make sense of it all. If we choose to tell a negative (or positive) story (irrespective of the complete facts), then that tends to imprint the overall experience as negative (or positive).

Thus we have two selves – the remembering self (who is making sense of our past through our stories we have created) and our current experiencing self (often just adding further chapters to the stories already created).

Defining happiness – The remembering self is not very accurate with the truth, so maybe it is a misguided notion to even ask people how satisfied they are with their lives. Instead it is better to focus on the here and now – i.e. ‘How happy are you right now?’ Kahneman suggests a simple measure of happiness as ‘Time spent doing things we want to do’ minus ‘Time spent doing things we do not want to do’.

 

In an experiment to map people’s happiness throughout a day they developed the ‘U’ index (higher the percentage the greater the time spent in an unpleasant state). For American women their U index differed throughout the day: 29% for the morning commute, 27% for work, 24% for looking after the children, 18% for housework, 12% for watching TV and 5% for sex. One of the key predictors of positive feelings during a day is contact with family or friends. On Gallup’s, ‘Ladder of life’, some of the key influencers of a good life include educational attainment, and religion, whilst the key negative was ill health.

We are born with a pre-disposition for well-being. People who appear equally fortunate in life vary greatly in how happy they are. Thus we return to our base line irrespective of our ills or fortunes.

Immediately after the accident Paraplegics feel understandable low, but as life returns to a new equilibrium they focus more on the differences than their new reality and so return to a similar level of happiness they had before the accident. Likewise people who win the lottery, eventually

return to close to their old state of happiness.

Setting (and then achieving) of goals appears to also be a key determinant of our happiness.

A study of 12,000 students found that those who had rated highly the statement ‘being very well-off financially’ as essential were shown to be more likely to have achieved financial success in their lives. It also helped with their life satisfaction if they had achieved their desired goals.

That said, above a certain amount of money ($75,000 in 2011) more money does not increase happiness. Whilst money does buy better pleasures, it does not buy greater happiness as people rapidly get used to new higher standards. It also reduces our ability to enjoy the small things in life.

!Likewise, a new car (or any big purchases) tends to only have a temporary lift as we quickly subsume it into our everyday life. Thus once we get used to something, it loses its ability to lift our emotions. One of the reasons cited why rich people are no happier is there is little major differential in the extra class of items they can buy.

However, joining a club or learning a new activity (be it learning the cello or playing tennis) where you constantly have new challenges or interactions is different and so is often more uplifting in the longer term as it cannot disappear easily into the backdrop tapestry of life.

A Few Final Thoughts

 

Just because we are not rational in our decision making, does not mean we are irrational. We are trying our best but sadly easily misguided. Thus we often need help when making bigger decisions (e.g. though use of computers or a number of people to filter the decision making process).

!Whilst unscrupulous people can take advantage of people thorough the fault lines of our decision-making, one can also use this to encourage positive actions such as pensions saving, organ donation and healthier eating (cf Nudge).

System 1 is sadly the origin of many of the errors we make. Unfortunately it’s difficult to educate and control. Furthermore just because we become more aware of these limitations does not stop us falling under their misguided spell. It’s easier with System 2 – when you become aware that you are in a cognitive minefield, slow down and ask for help.

CRITIQUE

 

This book is dense. It is full of great insights into human frailty of decision-making. What is so good about this book is we have the architect of the theories and the experiments rather than a third party reporter (like Gladwell or Lehrer). But that closeness to the subject comes with a few problems.

Maybe quite harshly, this book feels a bit self-indulgent in that it goes into far too much depth – It gets lost in minutiae and over-labours points repeatedly. I believe he could easily have edited out 100 pages of unnecessary detail of discussion.

I also worry that people will read this book and assume they can manipulate others. Many of the experiments are isolated events which bear little reality to life (for example in the era of ease of access to information any time anywhere, we are less likely to be as negatively influenced). Thus some of the biases may have been over played.

 

____________________________

 

If you are looking for an enjoyable, yet effective away-day
(be it brainstorming, vision & values, strategic brand building or teambuilding) maybe I can help?

 

Paul Arnold Consulting – PLANNING – FACILITATION – TRAINING  paul_arnold@me.com

Posted in Behaviour change, Behavioural Economics, Decision making, Leadership, Management, Negotiation, Persuasion/Influence, Uncategorized | Leave a comment

Grow – How ideals power growth and profit at the world’s greatest companies. By Jim Stengel

Grow by Jim Stengel

Summarised by Paul Arnold – Strategic Planner, Facilitator and Trainer – paul_arnold@me.com

IN A NUTSHELL

Brands/Organisations will maximise their return if they have at their driving core an ideal (i.e. a higher level purpose). In Stengel’s top 50 cases, they outperformed the S&P top 500 by 400% over a ten year period.

Stengel suggest five key steps to develop a ideal based sustainable business:
1- Discover a brand ideal of improving people’s lives in one of the five fields of fundamental human values (Eliciting joy, Enabling connection, Inspiring exploration, Evoking pride or Impacting society)
2- Build the organisational culture around the brand ideal
3- Communicate the brand ideal to engage employees and customers
4- Deliver a near-ideal customer experience
5- Evaluate the progress and your people against the brand ideal

THE BOOK

The Stengel 50

In 1980, almost the entire valuation of S&P 500 companies was based on tangible assets (e.g. cash, stock, plant, buildings etc). In 2010 tangible assets only accounted for 40-45% of market capitalisation – the rest we’re intangible assets. More than half of what accounted for these intangible assets was the brand itself. When you look at different brands within the Stengel 50, you find that the value of the brand can be as high as 57%. Critically we see a significant increase in its importance over a ten year period:

Brand Contribution 2001

Brand Contribution 2010

Accenture

19%

47%

FedEx

17%

55%

IBM

34%

44%

Samsung

12%

42%

Starbucks

26%

57%

Source: Milward Brown Optimor

Thus if a company wants to grow, then one of its fastest ways of doing this is to build the brand.

Data gathered over a ten year period from more than 50,000 brands (via Millward Brand ‘Brand Z’ data base) has shown that organisations/brands that have a central higher ideal of improving people’s lives outperform the market. Stengel identified 50 such organisations and tracking their share price, found that over a ten year period the return upon investing in these 50 companies outperformed the S&P top 500 by c400%. Thus doing the right thing actually makes you more money – i.e. altruism and corporate social responsibility does pay off in the end (cf Porter’s 2011 HBR paper on revisiting capitalism – Ed).

 

Human Values

Brand ideals of the top performing businesses centre in one of five areas of fundamental human values. These are:

-Eliciting joy
-Enabling connection
-Inspiring exploration (helping people explore new horizons and new experiences)
-Evoking pride (giving people increased confidence, strength, security and vitality)
-Impacting society (including challenging the status quo and redefining categories)

 

Eliciting joy

Enabling connection

Inspiring exploration

Evoking pride

Impacting society

Coca-Cola

Airtel

Amazon

Calvin Klein

Accenture

Emirates

BlackBerry

Apple

Heineken

Aquarel

Lindt

FedEx

Diesel

Hennessy

Chipotle

MasterCard

Natura

Discovery

Hermes

Dove

Moet & Chandon

Rakuten Ichiba

Google

Hugo Boss

IBM

Tsingtao

Starbucks

HP

Jack Daniel’s

Innocent

Vente-Privee.com

Johnny Walker

L’Occitaine

Method

Wegmens

Louis Vuitton

Mercedes-Benz

Petrobras

Zappos

Pampers

Snow Beer

Royal Canin

Zara

Red Bull

Sedmoy Kontinent

Samsung

Sensodyne

Visa

Seventh Generation

Stonyfield Farm

The benefits of becoming an ideal driven organisation

One of the ways that makes a business grow faster than its competition is to have a brand ideal – a shared goal of improving people’s lives – the higher order benefit it brings to its customers. It’s the organisation’s essential raison d’être.

There are a wide range of benefits, not just share price:

Ideal helps provide clear identity of what the brand stands for – A brand needs a clear identity so all stakeholders (investors, employees, customers etc) know what the brand stands for.

Pizza Hut lost its ideal in the 2000’s in its chase for profit. Eventually it rediscovered it (‘We believe the world would be a better place if we could invest more time in the relationships that are important to us, and we exist to enable and support that’) and the company has bounced back with double digit growth (as everyone has a much clearer perception of what the company is trying to offer to its customers). This ideal helped guide employees in every decision they needed to make.

Ideal provides a clear direction for everyone in the organisation to move towards – The ideal becomes the ‘North star’ of the organisation. Beliefs, values and ideals trumps processes and procedures in helping to drive a company in one focused direction. Numbers alone cannot be the focus as it fails to inspire everyone (and they can also be ‘gamed’). Focus instead on the ideal and the financials will flow.

Critically it helps prevent a company from getting distracted by so many other issues and pressures that can easily derail an organisation.

Natura, a leader in green products, remained focused on their eco mission when the market started to contract during the recession. They kept growing when other mainstream brands started to suffer.

It also helps a brand know when to say ‘no’ to opportunities.

Discovery Channel started to lose its clarity on ‘satisfying curiosity’ with some less relevant content choices. When it refocused, it rejected the offer to run ‘The ultimate fighter’ (which went on to be a huge hit for Spike TV) and instead they made a major investment in ‘Curiosity: The questions of life’ that symbolically reasserted its positioning in the market place. As John Hendricks says, “You’ve got to take some big swings.”

Ideal helps create differentiation from other bands – It’s more difficult for an organisation to copy your ideal than to copy your product. The Why you do something is often as important as the What you do. It helps give greater depth to the product than just its functional benefit. It also helps lift the brand above the need to ‘buy-in’ purchases with discounts and promotions (Zappos for example does not discount).

For Innocent, HOW it behaves is as important as WHAT it makes. It does not take itself too seriously. For example it add into its ingredients label phrases such as ‘a ten gallon hat’ or ‘a lawnmower’. It calls its AGM – its ‘Annual Grown-up Meeting’. It also tries to answer the phone to customers in the same friendly tone when the three founders first manned the phones themselves. Thus everything has the same feel and tone that helps make the brand distinctive from other fruit drink brands.

Ideal helps galvanise and inspire the employees and so lifts performance levels – When a team are focused on delivering the ideal, they are highly motivated above and beyond normal statutory contractual obligations. That is because the ideal often triggers a personal ambition within themselves that makes them feel their role is helping to make a real difference.

 

Eric Ryan, co-founder of Method said, “As human beings, we all want to be part of something bigger than who we are and what we are. When you articulate an ideal and create a cause, it gives people, including myself, the ability to do so much more. You’re more excited to jump out of bed and go to work when you’re doing something that improves people’s lives”.

Zappos creates the best customer experience – over the phone. Through ideals, they have helped lift the pride in delivering an unrivalled experience (among people who previously it has been assumed are difficult to motivate due to the nature of this perceived ‘low end’ job).

Ideal helps drive innovation – Having an ideal offers a company many new opportunities to deliver more powerfully to its consumers. By focusing on this higher level, it frees a brand from its normal straightjacket of possibilities.

Time-Life never thought through what their true purpose was (as saw themselves as book publishers), so missed other media opportunities such as TV. If they had a clearer defined purpose (such as ‘satisfying people’s curiosity about the world’s wonders’) they would not have been constrained by the functional delivery of their offering but could well have gone on to become another Discovery channel.

Ideal helps express the brand in many novel ways and spaces – By clarifying the brand ideal, it allows the company to increase its brand fingerprint into other ways that helps it deliver added value to its customers (cf Dove’s self esteem workshops – Ed).

The Always ideal is focused on helping women embrace womanhood. They identified that in many third world markets, young women did not have easy access to menstrual products which meant many of them missed schooling (which in turn led to higher drop-out rates in further education). This inspired the brand to also help out on a number of educational projects.

Ideal helps make the company more attractive to new recruits (as well as retaining the current talent) – The new generation recruits are looking for a greater depth of engagement with their companies. They are looking for a company who are aligned with their own values. A company who therefore has a deeper sense of purpose is more attractive than one just focused on profit.

Research has shown that young people are three times more likely to work for a company that does something they care about.

Zappos has very low rate employee turnover. Their ideal means many people approach them for jobs. They then spend a lot of time recruiting the right type of people, mainly based on values and attitudes.

Ideal helps integrate disparate units/companies into a cohesive whole

Of the 320,000 Hewlett Packard employees, half have joined them in the past five years (mainly through acquisition). HP used they core ideal (first preached by its founders) of ‘advancing human progress’ as the connective tissue to bring all their separate companies they had purchased under one central guiding ethos.

Ideal helps attract new and hold onto existing customers – It’s not what you sell, it’s what you stand for has become increasingly important.

 

Net: Ideal helps drive long-term sustainable growth – By consistently aiming to deliver against timeless fundamental human truth helps guarantee a brand’s long term appeal.

The Stengel approach

Stengel suggests 5 key steps to develop an ideal driven organisation:

  1. Discover a brand ideal
  2. Build the business culture around the ideal
  3. Communicate the ideal internally and externally
  4. Deliver a near-ideal customer experience
  5. Evaluate business and people progress against the ideal

We will look at each of these in turn:

Step 1 – Discover a brand ideal of improving people’s lives in one of the five fields of fundamental human values
Many companies set a vision of where they want to get to (e.g. ‘To be number 1’) alongside a strategy (i.e. How to get there). However this is rarely motivating enough by itself. People need a deeper sense of purpose – something that helps them feel they are making a real and meaningful difference in the world. This is where the ideal sits. It’s the reason why that lies behind the vision – the underlying purpose and what really motivates us all go the extra mile.

Finding your Ideal

1 – Look at your history – What made the founders start up the company? What were their beliefs and values? What were they striving to achieve? What did they stand up for?

When Bill Hewlett and Dave Packard set up their company in 1939, they were focused on making a contribution to society through technology.

The Jack Daniels company looked back to its founder to find stories that elicited their brand ideal. Often when thinking about how to handle a situation they would ask ‘What would Jack have done?’

2 – Understand deeply your target users and what is important for them – Study their behaviour, beliefs and values. Listen to their stories.

At P&G an audit discovered the the Marketing teams were spending less than 5% of their time customers & consumers – it was only 5%. P&G in Latin America send new people in their marketing department to live with families for a month to gain a closer understanding of their lives (and the role their brands play in their lives).

3 – Study closely what you do and distill it down to its raw essence (often this requires laddering up to higher benefits).

Pizza Hut interviewed many employees, and videoed the making of the pizzas along with the restaurant experience to help it (re)discover its brand ideal.

When you have found the area, write it down (along with your rationale) – then share it and finally refine it, before bringing it to life (often with a video).

 

Step 2 – Build the organisational culture around the brand ideal

Getting the culture right is one of the most effective (yet most difficult) things to help drive the behaviour of an organisation – over the long-haul, purpose always trumps command and control systems (or rule by fear/manipulation).

It’s critical to conduct an audit to find the gap between the reality of today and what is required to deliver the ideal. People do not want to change. You need to keep on pushing to instil change in an organisation. If you stop leading change, you stop leading.

One of the key tasks of senior management is to provide the right resources (esp. talent) into an environment that is conducive to getting the best return out of those resources. If you don’t hire, train, promote and reward people based on the brand ideal then you will never bring it to life. The key is to hire the right people as nothing is more important to fulfilling the business ideal than the people you employ (‘Always bet on talent’). The Stengel 50 spend an inordinate amount of time ensuring they hired the right type of people. They also invest in ‘on-boarding’ them as well as regular training (as easier to train people in skills rather than values).

At Zappos, everyone goes through call training and spends time answering phones. Every year, around Christmas everyone puts in an extra 10 hours helping out on the phones.

Terry Leahy, then the CEO of Tesco’s recommended that a company must treat its employees the same way it treats its customers.

The decisions made by senior management can be deeply symbolic for a company as it helps reinforce what the company believes to be of critical importance.

At P&G, Stengel took over a dysfunctional, geographically spread team. To demonstrate his commitment to the need for teamwork, he flew them all into one place on a regular basis; bought in a facilitator who specialised in group dynamics and ran a series of team building workshops to help unlock their issues.

It often takes time to do this and its is recommended not to rush on too fast (“You often must go slow in order to go fast” says Paul Otellin, CEO for Intel).

The author outlines 10 culture builders

  1. Reveal your aspirational brand ideal and operationalise it
  2. Be clear about what you stand for (inside and outside the company)
  3. Design your organisation for what it needs to win
  4. Get you team right and do it quickly
  5. Champion innovation of all kinds (both commercial innovation and disruptive revolution)
  6. Set your standards very high
  7. Train all the time
  8. Do a few symbolic things to create excitement about what is important
  9. Think like a winner, act like a winner
  10. Live your desired legacy

Pampers moved its brand above and beyond their core focus of ‘dryness’ to ‘helping mothers care for their babies’ and toddlers’ health and happy development’ and regained its supremacy versus Huggies. The brand had lost sight of the consumer and were too focused on their functional dryness benefit. To help them rediscover their ideal, they went back to the Pampers creator, and found dryness was never his ultimate goal – he wanted to improve the lives of babies and their carers. Dryness was a means to an end but not the end in itself. They also re- immersed themselves into Parent’s lives – at home, at work and in the supermarket. They also looked at other parent based brands not in the diaper segment (such as Johnson & Johnson). One of the insights that came up was the importance of the transitioning stages a baby/ toddler/child goes through and the role the carer plays in helping them develop. The new ideal inspired new advertising, packaging and products (providing a more holistic expression of the brand). The new ideal also helped them ruthlessly cut back on extraneous projects and only focus on a few ‘big wins’.

They also created a new team (and moved the nay-sayers out of harm’s way), and ensured people had a longer tenure on brands (to see through the consequences of their decisions rather then being moved off to new projects in 18-24 months). Furthermore they reshaped the culture to be more focused on the mother (with maternity parking spaces, creches, as well as changing the decor of the office space).

The process of embedding the new ideal with the consumer took time (with a number of wrong turns along the way) but with perseverance it has tripled in size over the past 15 years (it is now a c$10bn brand in 2012 and was $3.4bn in 1997).

Step 3 – Communicate the brand ideal to engage employees and customers

A brand needs to be consistent in all areas of its operation. It must really ‘walk its talk’ as the world is too transparent these days (“Everything a brand does is media” said Lee Clow from TBWA). To do this, you need every employee (and stakeholder) to understand the brand ideal as this helps influence every micro decision an organisation makes.

Leaders need to have high levels of Emotional Intelligence to help inspire and lead – ironically they need to be better listeners than orators. We are all in the relationships business – thus it’s key to be able to form strong relationships with all types of people within an organisation.

One of the ways P&G tried to break down the old barriers was to make people sit in non functional teams – so next to a strategist might be a logistics person or a chemist. It is also important to regularly communicate to everyone (which digital technology now allows you to do). Every quarter the author held an ‘all hands’ webcast called the PBS News Hour.

Use of storytelling is a key tool in helping to embed the ideal – often by telling the stories of the founders, or examples of their customers personal stories about how the brand/ company helped them.

At Motorola, having discovered from people’s stories that the brand ideal was around ‘helping people be their best in the moments that matter’ , they got the 600 global leaders together and got them designing ‘moments that matter’ posters that brought alive this ideal with other real examples. Many of these were finished up and displayed throughout the organisation around the world. These leaders then became the brand ambassadors helping to ignite others with the new ideal.

An example of a story Method tells its employees: They say a value is not a value until it costs you something. In Method’s case they were not prepared to compromise on quality to hit CostCo’s low desired pricing point – so accepted the loss of its listing in the store.

Step 4 – Deliver a near-ideal customer experience

A brand lives or dies on its reputation. The digital space has massively amplified the power of word of mouth. Thus a brand must deliver against its ideal. The more a company can deliver its ideal to its customers, the greater the chance of loyalty and recommendation.

To be a good leader you need to be prepared to make bold decisions. You must set very high standards and not let go of them.

Zappos decided to take the bold step of owning all its stock (whereas many retailers are now leaving the stock with its suppliers which helps reduce money tied-up). This allows them to make more faithful promises and to be in greater control of delivery.

If you have an inspiring ideal, you will find your workforce want to be part of the future history of the brand and so will be committed to living up to the ideal. It also helps generate loyalty and commitment from the outsider stakeholders (such as the ad agency, suppliers etc).

Apple employs people not on their technical skills but their people and life skills as they wanted everyone who came into their stores to leave feeling happy (because it recognises they are selling an experience as much as they are selling a piece of kit).

The issue with many organisations is that senior management like the feeling of power and fear letting go. An ideal driven company takes a different approach: Focus first on getting the right people in, then let go (and allow them to primarily self-organise around a number of core values, beliefs and an ideal).

Zappos relies on 10 values to help keep everyone focused on clear behavioural standards, such as:- ‘Deliver WOW through service’, Be adventurous, creative and open-minded’, ‘Build open and honest relationships with communication’, ‘Build a positive team and family spirit’, ‘Be humble’ and ’Create fun and a little wierdness’. There is no set script or sales quote. They are given free rein to ‘make the right decision’ with a customer based on these ten values. This leads to 75% of its daily business coming from past customers. Furthermore, they trust their vendors so much that they are prepared to share almost all their customer data with them (to also help them better meet the end consumer).

Your journey to the brand ideal is never over as there will always be better ways or new technologies to increasingly meet your customer’s needs. Thus innovation and change are two constants in an ideal driven business.

 

Step 5 – Evaluate the progress and your people against the brand ideal

You need to continually assess how you are doing in achieving, maintaining and developing your brand ideal. ‘If you cannot measure it, you cannot improve it’ (said Lord Kelvin). Thus in any organisation it must measure what is important (and stop measuring what is not important). Being an Ideal driven organisations leads to a new set of metrics such as employee and customer engagement and not just the financials. Conversely, if you measure the wrong things then that will lead the company in a different direction (thus what you chose to measure has a critical influence on the direction an organisation goes in). Furthermore, personal objectives need to be a set as a mix of both personal tasks as well as cultural/ideal based objectives. For example, measure and reward time spent with customers and end consumers (because if they are the life-blood of a brand, it makes sense to stay really close to them).

Pampers had only been setting their key metrics against dryness so were ‘blind’ to the other areas of importance. The trouble was their scores on dryness kept increasing but this was becoming less relevant for the mother. When they refocused, they included many brand tracking elements such as ‘This is a brand that shares my values.’

Toyota are currently in the process of standardising its KPIs globally to provide real focus within the organisation.

At Visa, 50% of their evaluation rests on how they treat their people and how they get their jobs done.

At P&G every manager in the marketing function is assessed against three criteria: Business results; Brand health results and Organisational development results.

   ——————————————————————————————————————

Examples of some of Stengel’s top 50 Brand Ideals

Accenture – exists to help people accelerate ideas to achieve their dreams

Apple – exists to empower creative exploration and self-expression

Coca Cola – exists to inspire moments of happiness

Discovery Channel – exists to satisfy people’s curiosity about their world and the universe

Dove – exists to celebrate every woman’s unique beauty

FedEx – exists to deliver peace of mind to everyday interactions Google – exists to immediately satisfy every curiosity

HP – exists to foster the human capacity to innovate and progress IBM – exists to help build a smarter planet

Innocent – exists to make it easy for people to do themselves good

Johnny Walker – exists to celebrate journeys of progress and success

Lindt – exists to provide joy through small luxuries

Louis Vuitton – exists to luxuriously accentuate the journey of life

Mastercard – exists to make the world of commerce simpler and more flexible

Mercedes-Benz – exists to epitomise a life of achievement

Moet & Chandon – exists to transform occasions into celebrations

Pampers – exists to help mothers care for their babies’ and toddlers’ health and happy development

Red Bull – exists to energise the world

Royal Canin – exists to support people’s lifelong, loving relationships with their pets

Samsung – exists to inspire imagination and enrich lives in a world of limitless possibilities

Snow Beer – exists to celebrate everyday moments of success

Starbucks – exists to create connections for self-discovery and inspiration

Visa – exists to provide the freedom to people to follow their passions by providing better money for better living

Zappos – exists to deliver happiness through ‘wow!’ service

Zara – exists to democratise fashion trends

 

CRITIQUE

Grow is an easy book to read, with lost of interesting case studies (although there is a fair amount of repetition – chapter three covers the essential bits that he then takes another 193 pages to expand upon!)

I totalIy ‘buy’ into his thesis that brands and organisations should organise themselves around a core ideal. It echoes many of the themes of Simon Sinek’s book, ‘Start with Why’.

However, I do question some of the contents:

– The book (like many management books) fall into the romantic trap of what I call ‘single-issue management’ – i.e. If you just do this one thing then your business will be transformed’ when in truth we know businesses are incredibly complex and there is no magic one-bullet fix.

– I wonder whether all brands should restrict themselves to just the five fields of fundamental human values. There are more values (which would reduce differentiation) and this seems to fight against his other idea of finding your authentic ideal.

– The trouble with statistics is they can easily be ‘bent’ to fit the theory. Thus I wonder (not that I have any proof) that Stengel has chosen 50 high performing companies and then ‘found’ their ideal. I am sure you could also find another group with clear ideals who are not performing as well (and of course other non ideal brands that are also performing well). Finally Blackberry is an example of where an ideal has failed to help save them!

– Furthermore, the book makes the mistake of assuming that correlation = causation (i.e. just because a group of high performing organisations have a brand ideal does not necessarily mean that having an ideal is the cause of their success).

– I have had the honour to work very closely with the Sensodyne brand and can absolutely guarantee that the ideal quoted is WRONG (the brand is more focused on preventing the pain of sensitivity than ‘to nourish life’s happiest asset, a bright smile’). Thus I wonder where he got his ‘ideals’ from? – Has he and his team really spoken to the brands or just post-rationalised them?

-I also challenge the notion that it is the CEO who defines the ideal. From my MSc. in Change, it’s much better to work with the whole organisation to gain their inputs to define the ideal (as then everyone is more committed to it than if ‘presented’ as tablets of stone from on high).

Paul Arnold Consulting PLANNING – FACILITATION – TRAINING  paul_arnold@me.com

Posted in Advertising, Behaviour change, Brands, Business strategy, Decision making, Innovation, Innovation/NPD, Leadership, Management, Marketing, New Business, Persuasion/Influence, Team building, Transformational teams, Uncategorized | 2 Comments

Getting to Yes – Negotiating an agreement without giving in by Roger Fisher and William Ury

Getting to yes

Summarised by Paul Arnold – Strategic Planner, Facilitator and Trainer – paul_arnold@me.com

THE BOOK IN A NUTSHELL

‘Principled’ negotiation is based on four key areas (PIOC):

People – Separate the people from the problem

Interests – Focus on interests not positions

Options – Create options for mutual gain

Criteria – Agree criteria for decision making upfront

”Let us never negotiate out of fear. But let us never fear negotiating” – John F Kennedy

THE BOOK

Ideal negotiations should accomplish three things:

  1. Produce a positive agreement for both sides
  2. Be efficient
  3. Not damage the relationship.

‘Principled negotiation’ helps achieve this. It has four tenets:

  1. People – Separate the people from the problem
  2. Interests – Focus on interests not positions
  3. Options – Create options for mutual gain
  4. Criteria – Agree criteria for decision making upfront

1) PEOPLE – Separate the people from the problem

We are not robots. We all have emotions and egos. People often come to the negotiating table high on anxiety. Be aware that emotions can easily be triggered through language, tone, body talk or action (even small unmeant quips or looks can destroy the rapport). People can easily mis-interpret the meaning.

One of the problems of emotions is they are transferable and can get mixed together (anxiety moves into anger; stress at home moves into the boardroom etc). Therefore it’s key to first identify the emotions (on both sides) and then take them out of the room before formal negotiations start.

Most negotiations happen with long-term partners (indeed in many cases the value of the relationship is more important than the substance at stake in the negotiation – so do not lose sight of what is really important). Spend time up-front to build a trusting empathic relationship (preferably well before the negotiation period) as this is the key to successful negotiations.

All too often we get lost in the details of the negotiation and ignore the impact on the people. Work on building relationships – the more we can move from talking to strangers to talking with people we know, the better. Thus every negotiation has two axes to focus on: The substance of the negotiation and the relationship between the parties.

Likewise if it is already a difficult relationship this can negatively affect the current negotiation (as there will not be ‘clean’ conversations – people will often read new meanings into comments made based on their past experience).

We all see and feel the issues differently from the other parties (so don’t deduce their intentions from our own fears). We often falsely assume that we know the right answer (and get frustrated when the other side does not understand our logic). So it’s key to always summarise what we believe we have heard.

We tend to see the merits of our argument and the faults of theirs (it’s psychologically easier to blame the other side for issues that actually are more to do with our side). Instead we need to step into the other side’s shoes. Seeing their point of view does not necessarily mean having to agree with it. But to not know it almost certainly makes it much harder to negotiate successfully. We need to understand not only the context and issues but the emotional intensity people feel about it. If we do not acknowledge and address the emotional side, we will not be given the chance to negotiate on the more tangible aspects of the issue.

It’s important to get the key stakeholders on their side involved in the discussions early on, else their perceptions/needs/demands may not be completely understood. It’s important to try to understand their hierarchy of importance (as less flexible on their key issues). The problem can also be that not everyone on each side is totally aligned (so may need to spend time with your own stakeholders first to ensure complete alignment).

2) INTERESTS – Focus on interests not positions

It’s critical to be clear of what we really want (and what the other parties also want). Critically this is rarely our initial bargaining position which disguises what is really important.

Keep asking ‘Why?’ – so can reach the higher reasons that drive the demand. Often at the higher level we can find a mutually shared goal which unlocks alternate solutions.

Ask ‘Why not?’- this also helps highlight what’s at stake – especially when exploring alternates.

Identify all their interests – often it’s not the top ones that hold-up negotiations, but the smaller ones that often go unsurfaced until much later on. Sometimes their interests are in different areas from your own (which allows for a few quick wins to get the negotiation off to a good start).

The most powerful interests in any negotiation are the basic human needs: Security, Economic well being, A sense of belonging, Recognition, A sense of equality and Control over one’s life.

Sort out these fundamental needs first and the money issues tend to fall into place. Often lack of respect can be a key issue going into negotiation and if badly handled, could jeopardise the negotiation.

Communicate interests – There is often a ‘game’ played in negotiations whereby the cards are kept close to the chest. But since the purpose of negotiation is to address our issues, it makes much more sense to be quite explicit about what we want. If we reveal our interests upfront then more likely this will stimulate to other side to do likewise.

Bring interests to life – It is our role to ‘sell’ our interests to the other side and make them appreciate their importance. The more they can ‘experience’ emotionally our interests, the greater the likelihood they can be influenced.

Do not denigrate their point of view – At this stage we should not dismiss or rubbish their position (as that puts up barriers). Instead listen to learn, and respect they have a legitimate different point of view. Only when a person feels understood, listened to and respected will they then offer us the same courtesy.

Be hard on the problem but soft on the people – Commit wholeheartedly to the higher level interests (as then they understand their importance), but be gentle on the people. We need to keep these two areas quite distinct in our head at all times. Thus we may attack the issue but support the person.

Focus on the future not the past – too often negotiations get caught-up arguing over what has happened, rather than spending the time on what needs to happen in the future.

Help them make an easy decision – structure the proposal in a way that addresses their key interests (as they will have to go back and ‘sell it in’ to other stakeholders) as they cannot be seen to have ‘lost-face’. It is therefore helpful to think though the proposals and ask, ‘How easy would this be for them to sell these proposals back into their organisation?’

3) OPTIONS – Create options for mutual gain

Breakdowns often happen when one party demands one thing and the other party are not flexible. If we understand their real interests then it allows the creation of a range of other solutions.

The authors prescribe a four step process to inventing options:

  1. Define the problem (i.e. What’s wrong?).
  2. Analysis  (i.e. diagnosing the causes of the problem).
  3. Approaches  (i.e. what are potential options)
  4. Action ideas (i.e. specific action plan).

Within this, they recommend:
1) Co-creating options with the other side
2) Looking through the eyes of different experts
3) Breaking the problem down into smaller parts (and then find options to solve those smaller parts)
4) Clustering together some weaker ideas to make a stronger unified one

Furthermore, when we hit a stale-mate, put some further options on the table to move things along.

4) CRITERIA – Agree criteria for decision making upfront

In the heat of negotiation it’s easy to lose sight of what is really important. We must therefore agree ground rules for decision-making up-front – otherwise the goals posts might move.

Deciding upon these objective criteria have two dimensions: the criteria itself and the empirical benchmarks any proposal needs to address. Both of these start to open up insights into the other side’s positioning strategy. What is key is to ensure we separate the discussions over criteria for agreement (i.e the rules of the game) away from the actual negotiation (the game in play). Only after the ‘rules of the game’ have been agreed should we start ‘playing the game’.

Further techniques and strategies

What if they are more powerful? – No amount of skilful negotiation will augment against the other side with a more powerful bargaining position. That said, we often underestimate the power of our position versus the other side.

We need to decide our ‘walk away position’ – i.e. the lowest point that we will be prepared to do a deal on. To make our position stronger, we need to work out what we will do if we can’t agree. It’s called the BATNA (Best Alternative To A Negotiated Agreement). The stronger our BATNA, the stronger our negotiating position and the happier we are to walk away. (otherwise we can feel trapped into an agreement – at any cost).

It’s therefore worthwhile exploring a number of BATNAs and developing them in advance. Potentially we may want to expose our BATNA to them.

What if they won’t play? – Sometimes, the other side do not want to ‘play a fair game’. There are three strategies to consider:

  1. Focus on principled negotiation – i.e. keep on pushing to negotiate along the lines laid out in this book.
  2. Third party- Call -in an independent facilitator to help manage the negotiation process.
  3. Negotiation Jujitsu – Typically, the other side will aggressively attack our position and potentially even criticise us personally. These we need to ignore. When they assert their position, do not attack it (if we do, we end up playing their game). Rejecting their position only cements and reinforces their position.

    Ask questions – Questions do not criticise but educates. Instead seek out the higher purpose and underlying principles of their proposals – keep pushing to understand more and more about their position. Try suggesting hypothetical scenarios that get them to discuss the impact on our side (so they can start to see how their position is untenable). Furthermore, use pauses and silence – they are powerful weapons. When it’s time, we can use what they have said to create a winning solution (as their replies would have given a deep insight into their perspectives).

    Don’t defend our ideas. Invite criticism and advice instead – Rather than defending our position, get them to explain in detail why our ideas are so wrong. Get them to suggest alternatives. This way we entice them to see our side.

What if they use dirty tricks? (e.g. Playing psychological games, good guy/bad guy routine, threats, time pressure tactics, extreme demands, lock-in tactics, using a ‘back-stop’ decision-maker who changes the deal at the last minute or deliberately deceiving us with phoney facts or holding back data).

The most common response is to just put up with it, not rock the boat and hope it’s a one-off incident. Sadly, this is rarely successful.

It’s best to raise the issue explicitly so the ‘game’ is made public. This maybe enough to make it stop.

Another tactic is to agree extra ground rules that cover off any of these underhand activities they are employing.

Also insist on objectivity – ask them the rationale behind their activities. Finally if all else fails then play the BATNA.

NET….

As with many areas in life, the more we prepare in advance the greater the likelihood of success. Gather as many facts as we can. Be clear what the high level interests are on both sides. Develop responses to specific questions, and be clear of roles & responsibilities, tactics and strategies. Negotiation is as much an art form as a science. The more we practice the more skilled and confident we will become. The key is to learn.

CRITIQUE

This is one of the ‘classics’ of negotiation. It forms a solid basis for the theory of negotiations but is short on practical tangible specifics. Nor does it really discuss the different types of negotiation that takes place.

The basic assumptions of ‘principled’, wise/efficient and relationships can be questioned. For example in many cases there is no ‘long term relationship’ (so who cares for a ‘win-win?)

Net I think I would recommend you to read this summary, and then spend the time saved reading Getting More: How You Can Negotiate to Succeed in Work and Life by Stuart Diamond.

Paul Arnold Consulting PLANNING – FACILITATION – TRAINING  paul_arnold@me.com

Posted in Decision making, Leadership, Management, Negotiation, Persuasion/Influence | Leave a comment

The Chimp Paradox The Mind Management Programme for Confidence, Success and Happiness by Dr. Steve Peters

 the chimp paradox

Summarised by Paul Arnold (Strategic Planner, Facilitator and Trainer) – paul_arnold@me.com

THE BOOK IN A NUTSHELL

Metaphorically we have three ‘operating systems’ inside of us: The Chimp (i.e. the uncontrolled, emotional child within us), The ‘Human’ (i.e. the rational adult) and the Computer (i.e. the unconscious part that runs most of our activities).
To live happier and more successful lives, we need to better manage our Chimp. We do this by 1) nurturing and negotiating with the Chimp and 2) recognising the Gremlins (i.e. our limiting beliefs) and then replacing them with more empowering beliefs.

THE BOOK

The first section is about the principles of the three parts of us (Human, Chimp and Computer). The second half explores the application of these principles to activities such as managing stress, relationships and being successful.

The author uses a metaphor of the solar system, with moons and planets. For simplicity I have left this out.

PART 1 THE INNER MIND EXPLORED

The psychological mind

The Human brain is made up of seven brains working together (Parietal, Frontal, Limbic, Occipital, Temporal, Brain stem and Cerebellum). This book focuses on just three – Parietal (The Computer), Frontal (Human), and the Limbic (Chimp). Although they try to work together they can clash (and often the Chimp will win).

The Chimp

The Chimp is the emotional machine inside of us. Emotions heavily control our decision- making (sometimes for the worse). Having a Chimp is like having a dog (or a child). You are not directly in total control of its behaviour but you are responsible for its behaviour. As such it is therefore necessary to learn how to manage your Chimp. If not, then the Chimp will run your life (and this can often lead to some poor quality of life decisions and behaviours).

The Chimp operates very differently from the Human inside.

The Chimp processes information primarily through feelings and impressions (and is irrational in its decision-making, being more driven by emotions than logic). The Chimp quickly assesses a situation, rapidly reaching (sometime false) judgements and conclusions. Chimp tends to be more adamant that it is right and so less able to be swayed from its belief. Once it’s made up its mind it searches the data to support its point of view and rejects conflicting information. The Chimp tends to be quite black or white in its opinions (so can be quite harsh and unforgiving). It is also quite blinkered in its options of response (usually jumping to some previously run default model of behaviour). The Chimp over- exaggerates things and uses highly inflated, catastrophic language. The Chimp reacts impetuously, with little regard to the longer term consequences of its actions.

The Chimp is sensitive, neurotic and paranoid. The Chimp loves external praise to validate its self esteem. Conversely it feels easily judged and hates criticism. The Chimp senses danger everywhere and so will try to protect itself. It will often protect itself by shifting responsibility and apportioning blame elsewhere. Thus the Chimp can often mis-interpret an innocent comment as being critical, leading the Chimp to ‘bite back’. Likewise, the Chimp is critical, intolerant, impatient and unforgiving in its judgements of others (leading to some quite harsh feedback).

The Chimp has powerful drives (such as sex, dominance, food, security, territory etc). The two key drivers are its need to survive and procreate (a person run by its Chimp often finds it difficult to remain monogamous). Ultimately, the Chimp is selfish and will use the troop to help support its own needs (it sees life as a constant battle of Win-Lose). The Chimp demands immediate gratification and gets angry and frustrated if thwarted.

Chimps still believe they live in the jungle and so sees (un)real threats in everyday situations. It is driven by instinct and primal desires and fears. These instincts are almost from birth so it reacts to a perceived stimulus /threat in a pre-set way (Flight/Fight/Freeze). There is typically over-reaction to an event as the Chimp always sees the worst possible outcome.

We have to accept that the Chimp in us will not change. When a Chimp does decide to act it’s difficult to control. ‘Self control’ will not work because the emotional Chimp is significantly stronger than the Human (a real chimp has 5x the strength of a real Human being). You have to learn to manage it like an emotional child. You must never forget that you always have a choice in how to behave. If the Human inside chooses to ignore the Chimp’s ‘offer’ on how to react, then the Human needs to negotiate, manage and support its frustrated Chimp. You need to find a way of addressing Chimps fundamental needs in a more ‘socially healthy’ way.

The Chimp can be managed in three ways:

Exercise: You need to help the Chimp release the emotion it is struggling to deal with. You need to find a safe way for the Chimp to healthily channel its pent up emotion rather than to be expressed through some inappropriate behaviour(beitselfdestruction suchassubstanceabuseorattackingother people). It can take as little as 10 minutes to release it. Likewise, if someone is ‘ranting’ at you realise it’s just their Chimp letting off steam (so don’t let your Chimp get hooked by his Chimp).

Box: Having exorcised the emotion, the Chimp will be tired and more open to accept a more considered, calmer conversation. If the Chimp re-fires up it just means it has not fully vented all its emotion yet. It may need a few ‘takes’ before the Chimp can be put back into its box.

Banana: The third way is to feed it bananas. There are two types: rewards (both physical and emotional) and distractions.

The Human inside

The Human is the antithesis of the Chimp (hence why they so often clash). The Human inside is evidence-based, rational in its ‘fact finding’ leading to well considered decisions. The Human draws widely in assessing the situation (thus is better able to put events into wider context). It can also handle ambiguity and accept the ‘greyness’ of most issues. The Human accepts that there are many influences on an event and as such are more prepared to reassess its perception of an issues if new information comes about (and hence be open to suggestions and personal improvements).

The Human makes slower, more considered decisions by gathering the facts (and so can be positively influenced by new information). The trouble is, by the time the Human has assessed the situation, the Chimp has already reacted (evidence suggests the Chimp reacts five times faster than the Human).

The Human inside of us masters self-control and discipline which the Chimp lacks. The Human also thinks forward through the consequences of its behaviours before making a final decision on its choice of action.

The Human is less judgemental and accusatory. It takes a balanced approach and realises we are all a mix of good and bad points (and thus we should all be equally valued). This often leads the Human to be more gracious and forgiving.

Our Human is social and wants to be part of a group that lives in peace and harmony (thus it is open to negotiate for the greater good of all). It likes order and follows the ‘laws of society’, relying upon ethics and values such as honesty, compassion, equality, conscience and self control. Sadly the Human can also get frustrated as there are many Chimps in the world who ignore such societal norms.

The Human wants to live in a world where it can flourish. It wants a driving purpose in its life to provide fulfilment, backed up with social and intellectual challenges in order to grow and develop.

The Computer

This is the part of the brain that stores information that both the Chimp and Human use as reference points to know how to respond.

This Computer runs about four times faster than the Chimp and hence 20 times faster than the Human.

The Stone of Life, Goblins and Gremlins – The Computer is essentially an empty drive when born. Over the years we start to write our programme on how to survive and thrive. Many of these become the core beliefs and values that shape our personality, behaviour and life. These are called our Stone of Life. Sadly some of the beliefs and strategies imported at an early age (often below the age of eight) may prove to be false or inappropriate later in our lives. Furthermore, potentially one-off events gets imprinted as global truths to apply to all situations. Just because one person let you down, was abusive, or abandoned you, does not mean everyone will.

The Gremlins are those beliefs that are unhelpful but can be removed whilst the Goblins are ones that cannot be removed. Gremlins and Goblins run on autopilot so we are often not aware how much they shape our daily behaviour.

Some common Gremlins:

Unhelpful and unrealistic expectations – These set you up to fail (and so trigger negative emotions of frustration, lack of self worth etc). We tend to also set too many traps such as the ‘If..then’ game. It goes like this: ‘If I….(do X or have Y) then…’ (I will be happy, successful, you will love me etc). This
game sets unnecessary conditions on our self worth and happiness.

‘Should’s’ and ‘Musts’ – These imply an order (and Chimps hate being told what to do). They become a burden. Remember you always have a choice. Merely shifting the ‘should/must’ to ‘could’ empowers you to make a freer choice (and removes guilt and a feeling of failure).

‘Be perfect’ – Many people have a misguided belief that you need to be perfect in everything you do. It is impossible to live up to this and sets you up to fail (and hence weaken your self esteem, self value and confidence). We are all fallible and make mistakes all the time. Getting things wrong is human. So instead of beating yourself up or hiding behind excuses and blame, learn to laugh at yourself.

Other Gremlin driven behaviours include over-reacting to situations, eating even when not hungry and not making decisions.

Start to notice some of these limiting beliefs and challenge their veracity. Likewise, you need to put into the Computer more empowering beliefs. Some of these could include: 1) Life is not fair 2) Goal posts move 3) There are no guarantees 4) You do not have total control over all aspect of your life and 5) Nothing lasts forever. By inputting these, then your are less surprised, less upset and more flexible in your response.

How to manage your Computer

If the Chimp senses any danger, it quickly assesses the level of risk and either reacts immediately if a major threat or if a lower threat then will look inside the Computer for advice (the speed of such reactions is less than 0.02 second). The trouble is the Human inside is often too slow to respond. Thus the quickest way is through the Computer.

We need to identify the Gremlins and replace them with more empowering autopilots to influence the Chimp’s perception of an event and hence how it chooses to react. The trouble is you can’t just expunge a Gremlin. You need to replace it with another belief. A Gremlin normally leaves a trail of negative emotion. So when you feel bad about something track it back to the belief state of the Gremlin (often Gremlins dance together, so you need to carefully unpick them).

When you have identified the area, ask yourself two questions:
1) What do you believe doing/thinking X will imply about you (Identity)? 2) What are the consequences of not doing X?

These questions start to unsettle the current belief, allowing you to input a more useful truth.

Like building muscle memory, you need to keep reinforcing it. The more often you can implant (and then act upon) the new installed belief, the greater chance it will become the new default setting.

PART 2 DAY TO DAY FUNCTIONING

How to understand and relate to other people

Remember that when talking to another person, they also have a Human, Computer and a Chimp inside them as well – so they may be responding from their Chimp (so try not to let their Chimp hook yours). We can’t change the way other people present themselves to us but you can help them manage their Chimp. Thus we need to know exactly who is in front of us at the time.

Differing mindsets – People can get stuck in their beliefs and behaviours because of the mindsets they hold. There are a number of different mindsets to notice in others (and in yourself). There are two key ones:

1) The Snow White Mindset – (more common with women). Snow white plays at being an innocent, passive victim (who ignores their responsibilities and accountabilities). They see themselves as powerless. They tend to blame others and circumstances for their misfortune (and feel misunderstood by others). If challenged, they become passively aggressive, self defensive, accusatory. and can sulk. They feel ‘hard done by’ and feel others ‘owe them’. When asked, “What’s wrong?” they will typically say, “Nothing…”

The Gremlins have disempowered them. Some of the beliefs they unconsciously hold are: ’Life is really tough’; ’I am a victim of circumstance’; ’There is nothing I can do to change things; ’Others are not helping me’; ’Others don’t understand me’; and ’The world is a harsh place’.

Some beliefs worth installing into the Computer are: ‘Nobody likes a victim’; ‘Everybody likes a positive person’; ’Nobody owes us anything’; ’Life is what
you make of it, not what it throws at you’; ’Everybody has to take responsibility for their own actions and attitudes’.

2) The Alpha Wolf Mindset – (more common with men). This is the aggressive dominant Chimp in the pack. At the extreme these people are control freaks and dictators. They have big (yet sensitive) egos. They see themselves at the centre of their world (and other people’s opinions less relevant than their own). People to them are a utility to help them achieve their aims – irrespective of the cost. They believe that getting other people to do things for them is justifiable and see compassion and admitting to mistakes as signs of weakness. If people disagree then using aggression is often the best strategy. They do not mind chewing through people, often being highly demanding and critical. Thus they tend to create unhappy and fear driven cultures. As with most wolf packs, when challenged they attack anyone who tries to stand up to them. Eventually at some point a new wolf does win out against them.

How to choose the right support network

Chimps have a powerful need to belong. They feel safer when with their troop. The paranoid Chimp sees danger everywhere and knows there is safety in numbers when in a troop. Its need to belong means the Chimp stores some Gremlins into the Computer such as: ‘I must please everybody’; ‘I need to prove myself all the time’; ’I mustn’t fail’ and ‘Everything is important’. If you have the right people around they will stabilise and help build your confidence (and vice versa if surrounded by the wrong people).

The trouble is not every person out there is in the same troop, so the Chimp can get attacked by Chimps in other competitive troops – thus the Chimp remains defensive and on alert. You need to assess who are the people whose views and opinions are important (and then ignore the rest).

How to communicate effectively

Communication is critical to any relationship. Failure to communicate properly can lead to frustrations and conflicts.

The Square of communication – There are four channels of communication: Chimp to

Chimp, Human to Human, Human to Chimp and Chimp to Human. The most productive conversations are Human to Human. The least are Chimp to Chimp where both sides get highly emotionally charged.

The key to communication is preparation (right person, right time, right place, right message, right tone). Most are pretty obvious but a few extra notes:

Right person – Beware the mistake of the ‘Wrong person syndrome’ – where take out the frustrations of one person on another (or discuss the issue about that person with everyone but the person themselves).

Right message – Be aware that two of you are entering the conversation – the Human inside and the Chimp. It’s important to recognise the Human and the Chimp will have different agenda’s – some of which could be unexpressed and hidden. The Chimps agenda will be fuelled by emotion and typically has a ‘win-lose’ mentality.

Chimps therefore interrupt a lot, intimidate (with dominating body language and noise), listen little, are intransigent, use little ‘logic’, blames others, and are insensitive to the feelings of those around them (as they are operating from a place of hurt themselves).

Right tonality – There is a difference between being assertive (making your needs be known – a Human trait) and being aggressive (where full of emotion and often accusatory – a Chimp trait).

People are often not assertive due to Gremlin beliefs such as ‘I am not as good as others’; ‘My feelings do not matter’ or ’My needs are not as important as others’.

There are three parts to assertive communications:

  1. Tell them clearly what you do not want (using the word ‘I’)
  2. Tell them clearly how it makes you feel
  3. Tell them clearly what you do want

If you trigger the Chimp it’s best to let them rant themselves out before trying to re- explain your position. Then you can say something like “I would like you to listen and not to interrupt me please. I don’t want you to shout at me. When you shout it makes me feel ……I would like you to respond in a quiet voice please. The facts as I perceive them to be are ……”

Right language – Avoid inflated language e.g. ‘hate’ (as emotionally charged words are infectious and will easily stir up the Chimp). Even words like ‘should’ and ‘must’ will create a reaction.

How to establish the right environment

Each brain sees the surrounding world very differently (and hence responds differently).

The Chimp jealously guards its territory which can lead to some disproportionate behaviour around job functions, garden fences, car parks and hence road rage.

The Chimp is often living in a place of high emotional anxiety as it perceives threats all around it. The Human needs to keep the Chimp away from high stress situations and keep reassuring it. Sadly some people live or work in environments that brings out their Chimp too often.

The Chimp feels comfortable when things are certain and in control. So some simple guides to help have a happy Chimp:

Right finances – Live within your means. Whilst the Chimp will want you to spend, it does not like the stress of money worries. It’s easier to control the spending than manage the debt.

 

Right friends – We do not always choose our friends. And some friends serve us for only some times in our lives. So if you have a friend who is constantly an emotional drain, then remember you do have a choice to walk away from that relationship and find new friends who better serve your needs now.

Right job – If you are in a job where you are constantly criticised and feel under threat then leave for one where you are rewarded and complemented (as Chimps need constant reassurance and take criticism badly – often striking out at others – and not necessarily at the right person either).

Right food – Beware the Chimp will eat emotionally.

Right time out – The Chimp needs down time.

Right health – Being healthy helps make you more resilient to life’s ups and downs.

How to deal with immediate stress

Stress to a certain level is a positive inducement. It’s the bodies warning sign that something needs to be done. We often try to deal with stress through other channels (rather than addressing the issue head on), such as over eating, over drinking, substance abuse, aggression, depression, etc. We need to find more positive ways to deal with our stress. The Chimp will quickly react to stress with no thought of the consequences of its behaviour.

The seven step process for managing instant stress:

  1. Recognition- Know the tell tale signs for you when going in to stress. What triggers you and how do you typically respond? You then need to ‘wake-up’ your Computer (e.g. by saying, “Change” or some other word which the Computer recognises as “It’s time to change the way I feel’).
  2. Press the pause button – Slowdown. Avoid the Chimp driven spontaneous response. Instead buy time.
  3. Escape – If possible, distance yourself from the situation – ideally physically remove yourself. In this free-er space try to relax and think more clearly. You have every right to be assertive and ask for time out.
  4. Get a helicopter perspective – Gain a wider perspective on the issue to make a better informed decision. Imagine your whole life on a time line. Float above it and put this event into perspective – How important is it really? Is it going to last forever? Will life go on?
  5. The plan – Work out what you can control and what you cannot. It can’t be guaranteed that you can make another person do anything as they are a free agent. So change must always start with yourself. Do not forget that how you react will influence how they react. Often it’s your own responses and unexpressed expectations that are the real issues.
  6. Reflection & activation – Keep focused on the end solution (and not get re-hooked on the problem).
  7. Smile – Try to see the lighter side of things. It helps keep things in perspective.

Diffusing stress – the AMP model. This is sometimes easier said than done if the Chimp has become very agitated. You need to calm your Chimp.

Accept – We have to accept the situation no matter how unjust or hurtful it may feel (life is unfair). To help do this you need your Chimp to vent those feelings of betrayal, hurt, rejection etc. Keeping it bottled up is wrong and more damaging to yourself in the long run. So find a safe place to vent – and then try to get it all out. The more of the ‘bile’ you extract from the wound, the greater the chance it has to heal.

Move on – Now you can ask yourself, what do you want to do now? You have two choices – to stay stuck with it and be locked inside the problem (by keeping it alive and running the old movie time and time again), or letting go and moving on. Often it’s best to just cut your losses and move on.

Plan – It’s critical that you plan how you will move on. Often just knowing the very first step is the most important to initiate action. To help remain committed, always focus on where you were and the progress made so far. Many people instead focus on where they want to be and this can become demotivating. For example if you plan to lose 20Kg, and just lost 2Kg then it looks an uphill struggle as everyday you are behind target. However if you focus on where you were then 2Kg less is a celebration.

Looking back from the future – To help devise a plan, imagine getting into a time machine and going forward in time past the event when you have achieved your goal. Then look back and creatively think of what you did to get there.

Some common examples of stress:

Decision-making – People get stressed by making the right decision. Remember, when there is no more information (even if incomplete) then make a decision with what you have. Often we focus more on the consequences of making decision A vs decision B. Our Chimp over exaggerates these consequences.

To make a good decision, first gather all the information possible to make a decision. Outline the various routes and explore the consequences of each (but keep the Chimp from painting them as too catastrophic). If there is no difference then either decision will work – so just toss a coin!

Trying to keep everything the same – Chimps want things to remain exactly the same – forever. They want their relationships to stay the same (likewise their jobs, and their health). So we need to programme into our Computer such beliefs as ‘Everything changes (on a continual basis)’; ‘Life moves on’ and ‘All things must end’.

Unrealistic expectations – Chimps hold locked down views about what should happen – but we cannot control other people/events – so we need to learn to let go of such unrealistic expectations.

Trying to control the uncontrollable – Many people want other people to do things – but they don’t. We have to be clear what is within our power to control and influence and what is not. So there is no point stressing over things you cannot effect.

 

How to deal with chronic (i.e. long-standing) stress

People are very adaptable and can learn to live with long term stress in their life. However, it can pay a big price on our health and happiness. Some of the tell tale signs are: always feeling tired, being short tempered, lacking a sense of humour, feelings of anxiety over nothing, inability to relax, paranoia, a sense of urgency with everything, tearful, depressed, unable to face friends or work, small tasks seem large and inability to sleep properly.

The root cause needs to be identified to effectively resolve the issue (and often it’s linked to the Gremlins we have).

A number of common scenarios:

Creating our own misery – Our actions create the situation – yet are blind that we are doing it (e.g. a person is lonely but is not aware his behaviour to others pushes people away).

Red herrings – We blame others or circumstances rather than taking responsibility. As long as we blame others we disempower ourselves and become victims.

The mushroom syndrome – Once you have sorted out one problem, another grows in its place. A lot of it is to do with seeing problems all around them rather than focusing on the positives that are also there. These people (Chimps) live in a place of constant agitation and become victims. People quickly tire of these types as they sap energy from others. These people need to realise that many worries are small in the grand scheme of life (and often resolve themselves).

Conflicting drives within us – The classic is the working mother syndrome. The Human need to store into the computing better belief systems such as ’It’s unrealistic to be perfect in all areas of our lives’.

Chronic stresses from circumstances or events – There is no value in stressing about things that are out of your control as this will achieve nothing. Instead focus on what you can do. Any bridge can only support so much ‘load’ so ensure you take off of your bridge stuff that does not need to be there.

Chronic stresses from others – This often stems from unrealistic/unexpressed expectation of others. We must become more transparent (to ourselves and others) of these expectations.

Stop beating yourself up – We also hold unrealistic expectations about ourselves. We are all trying to do the best we can (with the resources we have around us at the time). Of course we could do better but focus on what we did achieve rather than what we did not. It’s more energising and motivating to help us move on and tackle more of the problem.

Try asking yourself ‘How?’ rather than ‘Why?’ – ‘Why?’ is focused on the past. ‘How?’ is about the future. ‘Why?’ disempowers us. ‘How?’ helps us focus on solutions.

Talk – Not only does talking to others help release the tensions, it often leads to finding solutions.

Some other constructive ways to diffuse chronic stress: Relaxation techniques, delegate/share issues; ask for help, look beyond the problems at solutions, remind yourself that you are in charge of how you feel about anything and discuss your feelings with someone who cares

How to trap a Chimp: A Chimp can outrun, out climb and out swing you. Instead put a stone in a narrow necked vase that has been anchored down. The monkey will reach inside and try to grab the useless stone. However, the Chimps hand with the stone means the hand is now too fat to extract itself from the neck of the vase. Because the Chimp does not want to lose the (useless) stone it traps itself.

The moral for this is to fully assess the true worth of something. Be careful not to hold onto something that has relatively little real value in the long term – as by holding onto it, it traps you, preventing you from going after something more valuable in your life. So have the courage to let go of those ‘worthless stones’ in your life.

PART 3 – YOUR HEALTH, SUCCESS AND HAPPINESS

How to look after you health

The author creates two distinctions: Malfunction and Dysfunction. When the body is malfunctioning it is properly ill and that needs specialists to help repair and heal the body. When we are in dysfunction, we are not working at our optimum.

Keeping in shape physically – Chimp is driven by immediate gratification and dismisses the long term consequences. We also need to learn to relax and recuperate through taking time out and having proper amounts of sleep.

Don’t wade through treacle – Staying with problems all the time will sap you of your energy. Instead of spending your time locked in your problems, start with a blank slate and define exactly what you want, then you can define how you will get there.

Be proactive – Successful people tend to be proactive. They take action. And if their first steps do not work, then they respond again and again and again.

Being in shape mentally – We also need to keep our minds active through intellectual stimulation, challenges and laughter.

The foundations for success

The Human inside defines success differently from the Chimp. For the Chimp it’s often about external symbols such as material possessions, achievements etc. For the Human is more internal such as personal qualities (e.g. happiness) and working towards their purpose. So work out what each part of you defines as success.

Teams – There are a number of key principles that help a team perform well. These are the CORE principles:

C = Commitment – People need to identify/be committed to the cause/ purpose of the team. Motivation is temporary (a Chimp trait) and will not be sustained when the going gets tough, whilst commitment (Human) endures. Tangible plans helps people believe in the ambitions of the team (and so can commit).

O = Ownership – When you feel a sense of real ownership of a project you are much more likely to work tirelessly for that cause.

R = Responsibility – Responsibility introduces accountability. If you feel real ownership then you also hold a sense of responsibility for the outcome of the team or project. If you hold responsibility, you feel accountable for the outcomes and so will do whatever it takes to ensure the project gets delivered.

E = Excellence – It’s about setting (and holding to) high standards that are achievable.

Carrots and no stick – Humans and Chimps do not like sticks but do like carrots (and Chimps only respond to big carrots). We need to make sure we get (and give) more carrots. There are lots of types of carrots: material rewards, celebrations, recognition, encouragement and support (we should not be afraid to ask for support as well as to give it).

There is no place for the stick in society. The paranoid Chimp may try to run the workplace through aggression and fear. A Human driven manager instead provides support, and encourages development.

Likewise there are a number of sticks such as guilt, blame and regret (many of these can be about self punishment and hence can be very long lasting, preventing you from long term happiness).

How to be successful

The dream machine – a model for success – There is no guarantee for success. You can be lucky or unlucky. There are seven stages to the dream machine. You must remember that you have the Human and Chimp to deal with when planning your success. Think of your Chimp as a child: short attention span, undisciplined, disorganised, wants frequent rewards and is easily upset.

Cog 1 – The dream – A dream is something you want (but is not totally within your control e.g. to win a race). Goals are specific achievable objectives to help you reach your dreams that you are more in control of – e.g. training 3x a week. Goals have measures associated with it to check progress.

Cog 2 – Foundation stones – These are the components that drive the dream. Each foundation stone has a goal. It’s best to focus on one or two foundation stones at a time.

Cog 3 – Commitment screen – There are two key questions you need to ask to pass the commitment screen: 1) What do I need to get the task achieved? 2) How will I deal with the difficulties we will face?

Cog 4 – The plan – Lincoln once said, “If you have eight hours to chop down a tree, spend six hours sharpening your axe”. Thus success is all about developing a clear workable plan (and your plan works best in smaller manageable chunks).

Cog 5 – Oiling the wheels – You need to focus on what’s already been achieved (rather than what you have still to do) – and chart your success. Like climbing a mountain, celebrate when you reach each stage.

Cog 6 – Audit – Review the progress made against the key metrics and then reshape your strategies where off-target. When deciding how to resolve the blocks, explore options through three lenses:

  1. What are the circumstances/source of the issue?
  2. What have I done to contribute to the problem (be it a belief or a behaviour?) and
  3. What have others done to contribute to the problem.
    Chimps are into blame and will rarely look to themselves as the source of the problem (but conversely will take the tributes when things go well).

Cog 7 – Outcomes – You need to plan for three different kinds of outcome: Success/Partial success/Failure

Success – Beware of complacency. It can also lead to fear (of your ability to repeat the success) or depression (at having achieved your purpose and now feel empty).

Partial success – The Chimp will focus on what did not work, whilst the Human will be more sanguine and celebrate what did go right. Its important to remember that you are in control of how your choose to feel.

Failure – Try to see failure as a temporary setback and not the end of the road. Failure is just a signal for future change and improvement. Again the Chimp will overplay it and see it as a catastrophic disaster. Remember that something is only as important as you choose to make it. We often look back on past failures and respect the learnings we gainedfromit(ashelpsusliftto ahigherlevelofperformance).

The Chimp goes through a cycle of grief when things fail: Denial -> Yearning -> Bargaining (if only….) -> Anger -> Disorganisation -> Acceptance and Reorganisation. This process can take 3-12 months. It’s important to allow the natural grieving stages to be fully expressed.

Plug into your Computer statements such as: ‘We all have failures in our lives and ’It’s part of the way we learn and grow’.

How to be happy (and have successful relationships)

Like any emotional state it is a choice. You can choose right now to focus on the things that can make you happy or focus on the things that make you sad. That said, being happy all the time is unrealistic.

What makes one person happy differs from another. So the first step is to start to work out what makes you happy (and conversely what makes you sad/anxious) – then do more of the one and try to reduce the other. Your ‘happy list’ should also include immediate gratifications like ‘cup of tea’, ‘walking the dog’, and not just the longer term items. One suggestion is to keep a diary.

Likewise, what makes the Human happy is different from what makes the Chimp happy. Often the Chimp’s happiness stem from transient, material things (such as food, sex, power, territory, stimulants) which often have longer term negative impacts – so make sure you are more focused on the deeper intrinsic drivers of happiness that the Human focuses on (such as purpose, relationships, personal growth etc). The more you can build up the strength of these ‘inner core’ aspects that make you happy, the better able you will be to be less influenced by the negative situations in our lives. When we are not feeling strong about ourselves, then we are like a tree with no roots that can easily be blown over.

‘Having’ and ‘Being’ – There are two aspects to happiness. ‘Having’ is a Chimp trait (and ‘Being’ is more Human). ‘Having’ includes achievements, awards, material possessions. Research has shown happiness from possessions is short lived. The Chimp quickly accepts the gains and then wants more (Chimps are never satisfied).

‘Having’ the right partner – Again, the Chimp looks for different things in a relationship (e.g. sex) than the Human inside (e.g. a soul mate). Sadly most people enter a relationship with either Chimp or Human in control.

All relationships need to be worked on to keep them flourishing. Any relationship should make the other person feel good about who they are, help them develop as a person and bring out the best in them (and vice versa). You need to be clear what both sides want from the relationship (and not expect one person to be able to meet all of your Human and Chimp needs). Likewise, since we are all imperfect we will occasionally let the other person down. Either we forgive and move on, or hold onto it and keep ‘tormenting’ the other person. In which case you are as guilty in helping to destroy that relationship.

In arguments the Chimp will be unwilling to accept criticism, often finding excuses and blaming others/events. When pushed, their aggressive side will quickly flare.

Avoiding ‘conditional relationships’ – If you want to build a relationship with another person, then you must expect to do all the running. Any respectful relationship does not put preconditions or unrealistic expectations on it as often these are where things go wrong as they are often not made clear to the other person. You cannot blame or criticise a person for not doing something they did not realise was expected of them – yet we do this all the time. Therefore, if you are frustrated or annoyed by a person, first assess what was your expectation you had of them and whether this had been communicated to them. You can’t expect other people to live to your own standards – not do things that they are not naturally gifted at (so don’t ask a car mechanic to paint you a picture and vice versa). Thus it’s not a case of them having the problem – it’s you who has the problem.

When it comes to relationships, it’s best to import some of these truths into your Computer, for example: ‘Not all be people are going to be friendly’; ‘Not everyone is going to agree with everything you say’; ’Some people are not going to like you’; ’Some people never change’; ’Some people never understand’; ’We all vary from day to day’; ’No one is all bad’ and ’No-one is all good’.

‘Being’ – Being is about who you are. It’s about our self-image (i.e. the way we see ourselves), our self-worth (i.e. the value we put upon ourselves), our self-esteem (i.e. how we compare versus others) and our self-confidence (i.e. what we believe we are capable of).

The Human is more focused on values and personal goals than material gains. It also recognises the Chimp’s obsession with trying-to-be-liked to be fool’s gold.

Self-image – The Chimp looks at physical appearance and achievement to define self-image. Sadly it can rapidly change its mind so basing your self- image on what your Chimp thinks will make for a rocky road.

Self-worth – Depending upon the way you see yourself will ultimately affect the value you put upon yourself. And because your Chimp sees you differently from your Human, we can get some very different value ratings. Your real sense of self-worth needs to come from your Stone of Life.

Self-esteem – The Chimp creates a pecking order (much like in the jungle). Thus depending where you see yourself versus others can have some major limiting affects on who you spend time with, along with the quality and impact of your relationships with others (there is a great model from Transactional Analysis called the OK Corral which is worth referencing – Ed).

Self-confidence – The above factors will all influence your self-confidence – i.e. your belief in what you can (or cannot do). If this is misjudged then it can stop you doing things that are in reality within your ability.

Ways to happiness
You choose to be happy (or unhappy) by what you focus on.

Spend your time thinking about solutions rather than wallowing in the problem.

You choose how important an issue is. Take a macro view and see a
problem in the grand scheme of your whole life. This way you don’t get upset by small things that are not important.

Let go and move on (or forever be stuck).

Learn to laugh at yourself.

Be proactive in all things (especially relationships).

Beware the snowball Gremlin – Chimp likes to overdramatise issues. When it looks into the future all it sees are problems. The Gremlin pushes a snowball downhill that grows and grows and before long you never risk doing anything! You need to input into your Computer that ‘Few things in life turn out to be as bad as you first think’; ’You have the skills and capabilities to deal with most problems as they come along’; and ‘Only worry about real issues you can control – the rest is just wasted energy.’

Take you hand out of the fire – You would not leave your hand in the flame, so why stay in jobs and relationships that burn you?

Stop being your own biggest critic – Be light on yourself. Accept all of you, including the bits of you do not like.

How to develop security

Feeling secure makes your Chimp happy (and the best way to make a Chimp feel secure is to be within a group). The Chimp wants everything to stay the same (it loves routine and rituals) and will resist (consciously or unconsciously) any changes. The Chimp needs to accept that change is inevitable and that feeling vulnerable and insecure is normal in life for everyone.

It helps to store some beliefs into the Human Computer such as ‘There is always constant change’; ‘There is risk in everything we do (and sometimes staying safe is the riskiest thing we can do’) and‘We cannot control all risks’.

SUGGESTED EXERCISES:

Keep a diary to work out how much of your day is spent being Chimp versus Human. Take time out to reflect on how well you are managing your Chimp.

Live ‘NEAT’: N = Normal; E = Expect; A = Accept; T = Take care. It’s normal for the Chimp to have outbursts. Therefore you should expect it. Accept you are not perfect and take care of these outbursts in appropriate ways.

If you become upset by something, look to see if you have unhelpful/unrealistic expectations set. Start to work out your real values and beliefs and start to record these down as your stone of life.

Write down the qualities of the person you would ideally like to be. Then write down the list of who you think you are. The gaps highlight the areas the Gremlins and Chimp are affecting you (as the ideal list is the personality of your Human inside).

To discover what your key values are for your Stone of Life, imagine you are on your death bed, with one minute left to live and your great grandchild asks, “Tell me what should I do with my life?” Your answer will help you identify what is important for you.

What effect are you having on others? Are you building them up or knocking them down? Are you inspiring them or sapping energy away from them?

Define your troop and what roles they play in supporting you. Identify the gaps that are missing in your troop. Think about how you help them.

Human’s like a clear purpose – both a longer term one and immediate goals. So at the start of each day ask yourself what you want to achieve by the end of the day.

Write down anything that is causing you stress. Then divide each up into three perspectives: 1) Your own perception of the issue 2) The circumstances and settings of the issue 3) Other people involved in the issue. These help you identify the reasons that caused the issue and so help you find relevant solutions.

In deciding on a long term partner, make a list of their good points, their not-so-good points that you can put up with (NB it’s highly unlikely you will be able to change these), and their bad points that you cannot put up with. If there are any in the last column then chances are the relationship is doomed.

Imagine you are handing your partner over to another person. State the honest truth about your partner – good and bad points – warts and all. Sometimes it makes you question whether the relationship is still serving you.

Imagine you have an identical twin who really wants to look out for you. What advice would s/he give you? Sometimes this can be some quite tough home truths. Remember that often what you want is not what you need (and vice versa).

CRITIQUE

The Chimp/Human analogy helps us understand why we do what we do. It is of course a model and not reality. It is fundamentally flawed as we are one holistic being. As such we should not try to demonise parts of us and suggest ‘Chimp’ is bad and Human is ‘good’. The Chimp is not a separate being from us – it is us and we need to accept all of us.

In reality, there is little in this book that is new. It’s another take on the Triune brain, System1 vs System 2 thinking and draws heavily on Emotional intelligence and Transactional Analysis.

This book tries to be the magic elixir to life. The underlying principles I find useful but then its constant application to almost everything else becomes tiresome, worthy and frankly a bit incredible.

There is a saying that it’s easier to plan than to do, and for me his key strategies for managing your Chimp fall into this truism. Loading new beliefs is much easier said than done as it calming and convincing your irrational, emotional Chimp – we know with children that providing a rational explanation why they can’t have an ice-cream rarely works!

Furthermore there is a presumption that these areas are quick to fix. Psychotherapists have many long term patients who are still trying to manage their Chimps!

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Paul Arnold Consulting PLANNING – FACILITATION – TRAINING  paul_arnold@me.com

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